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.
Rob McLister, CMT
I have always wondered why CMHC is in the mortgage-backed securities market? That said, their role in saving the financial markets during the last liquidity and ABCP market crisis is very significant.
I always admire the aussies but lets hope we dont end up like them in this area….our banks are rich enuf…..
It pays to be a bank. I’d hate to be a monoline lender relying on third parties for funding. When the crap hits the fan, investors turn off the tap and leave you with nothing to fall back on but good’ol NHA MBS.
Canadian consumers owe a debt of gratitude to independent Mortgage Brokers. If it weren’t for brokers eroding the market share of the major banks, most consumers would be paying posted rate if not higher. Even with all the competition currently taking place in the mortgage market, the banks still reluctant to publish discounted rates and exercise a policy of discretionary pricing because they’re so enthusiastic (sic) about saving people money.
hey lior….bang on brother…a bank just called me and offered me cash back to jump to them…a nice tidy sum but when i asked about the fixed rate i gulped…it was cheaper to pay the vig to some mobster than that bank….the banks just break me up…they just dont get it…a big hurrah for mortgage brokers….