Australia’s conservative mortgage market is in many ways similar to Canada’s. For that reason, the Canadian mortgage industry often looks to Australia to spot mortgage trends that haven’t yet arrived here.
One Aussie trend that’s remarkable is the growing dominance of its banks. Banks account for a whopping 93.1% of mortgage market share, according to Phil Naylor, CEO of the Mortgage and Finance Association of Australia. That figure has been rising and is now at its highest on record. (By comparison, in Canada, banks control about 60-70% of the mortgage market.)
Most Canadians couldn’t care less about what’s happening in Australia’s banking sector. But here’s why it’s interesting…
As with Canadian banks, Australian banks have the broadest reach and lowest cost of funds in the market.
Unlike Canada, Australia’s mortgage securitization system was left nearly impotent after the credit crisis. The reason? It has little government backing. (Australia has no CMHC-equivalent to support its mortgage-backed securities market.)
That makes it a lot harder for non-bank lenders (who don’t have deposits) to fund mortgages and compete with the bank oligopoly. As a result, non-bank lenders have a pathetic 1.6% market share in Australia.
In a way, it’s too bad. In the early 2000s, aggressive non-bank lenders forced Australian banks to widen their mortgage discounts. Millions of homeowners benefited. A decade later, non-bank lenders are battling extinction.
The usual results of less competition in the mortgage market are higher mortgage rates and/or less product innovation. We’re exceptionally fortunate in Canada to have a government-guaranteed securitization market. Our country’s mortgage rates and non-bank market share would potentially look a lot more like Australia’s (i.e., worse) if it didn’t.