Lenders say they are doing it tough. Demand for new loans has dried up, we’ve had all the recent problems with the cost of funding, and there were reports recently showing that people are repaying their loans faster than ever. All this points to tough times for home lenders, and the point has even been picked up by APRA who have warned banks against loosening credit quality in order to make up some ground. Doing that of course is a false gain and you likely end up wearing even greater cost down the track when arrears and defaults go up.
There are some patches of sunshine amid the gloom, though. The feedback we are getting from lenders is quite polarized. The majority of lenders and struggling but there are a few who are quite pleased with how things are going. And these are the low cost online home loan lenders, the likes of UBank and loans.com.au, and individual product lines like the online product from Bankwest. They are all still aggressively chasing new business and seem quite happy with what they are getting.
So while the traditional lender is finding it very hard, those that are adapting their business model towards low cost and online do seem to be having some success at chipping away at market share. We think it is just the beginning of the new world, and we predict more and more of this in future. Those lenders who adapt their model can continue to gain business, and those stuck in the last decade will not.
Another way that the home loan market has shifted of late is that there seems to be less seasonality. Traditionally, home lenders focused their marketing efforts on a spring and autumn campaign. Some are now saying that this is not so much the case any more. And this is partly because the loans market is now not so focussed on new home purchases, and is much more about refinancing existing loans. So that’s where the online guys are really playing – UBank in particular – in trying to win people across from their existing lenders.
And that changes the dynamic quite a bit, because lenders need to go out and attract people to the savings they could make rather than just waiting for them to come looking for a loan because they need one. This might be the point in the market where the big bank brands struggle to attract customers, because of the negative public sentiment that has built of over recent times. This might be the point where we see the home lending climate change, directly caused by the actions of the big banks. On the flipside, they also have many more tools at their disposal to try to retain existing customers – including deep pockets and a well-oiled cross-sales machine.
Pack your swimmers and an umbrella.
Andrew Duncanson is the Research & Insights Director at Mozo.