Non-bank lenders lose share

In the past year non- bank lenders have seen their share of the home loan market slashed to one third. This was due to the global credit crunch funneling lenders back to traditional mortgages.

The banks, even though they have raised their standard variable rates independently of the RBA have a lock on nine out of ten mortgages.

As world financial conditions tighten, mortgage originators are tipped to phase out twelve month introductory discount interest rate loan

Government data indicates that wholesale lenders made up 4 per cent of housing finance in May. This is down from thirteen per cent a year earlier.

On the other hand banks commanded 90 per cent of the $13.6 billion home loan market in the same month. This is up from the 79 per cent in May 2007.

Permanent building societies saw their market share drop from 2.8 per cent to 1.5 per cent.

Credit unions remained more stable.

Data was taken after the major banks raised their standard variable lending rates in April. This was outside of any RBA move, but before they did the same in July.

Commsec economist Savanth Sebastian said banks would benefit at the expense of non-bank lenders.

Less competitive non-bank lenders are being priced out of the market and banks are well placed to increase market share in coming months.

When compared with the big banks the cost of borrowings for non-banks is a lot more expensive.

Unlike non-bank lenders the banks are able to draw from deposit accounts.

A senior analyst with Cannex, Harry Sanlitoga said the non-bank share of the mortgage market had fallen as higher global borrowing costs forced them to offer fewer products.

Discount interest rate loans would have to be phased out by non-bank lenders who were more exposed to the global credit crunch. At the moment it is a tough time in the market because funding costs are increasing.

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Published on July 7-th, 2008 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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