Prudential policy ‘greatest concern’ for mortgage market

The Deloitte Australian Mortgage Report 2017, asked 10 industry leaders — including representatives from AFG, Bank of Queensland, Commonwealth Bank, eChoice, Homeloans, NAB, Pepper Money, and Suncorp — their thoughts on the mortgage market in 2016 and what they expected the home lending environment to look like in the year ahead.

The report, touched on housing affordability and availability, mortgage pricing, regulation, digital disruption and innovation, and the broker market, among other areas.

It asked the panel of respondents a range of questions, including what were the two biggest concerns for the mortgage market this year.

Notably — given that APRA has since announced further restrictions on mortgage lending — the report found that 70 per cent of the panel surveyed cited “prudential policy on capital pressuring prices” as the biggest concern for the home loan market in 2017.

Deloitte consulting partner James Hickey highlighted that lenders had been responding to this by “adjusting their rates on investor lending and the availability of funding for certain borrowers”.

Vimpi Juneja, Bank of Queensland’s group executive for products and strategy, commented: "When I think about the industry as a whole, prudential policy implications on capital pressuring process is the biggest one. However, as a regional bank our concerns are both regulatory and geopolitical – both of which are associated with uncertainty. For instance, earlier in 2016, we had to set the investor cap very cautiously, which could easily offend both our property investors and customers. This would in turn, impact growth.”

Mr Juneja added that one of the “biggest issues” for the bank was “determining what reputational and policy appetite to set, and managing the subsequent engagement with the regulator”.

“Although not on the minds of customers, it is on the minds of us as providers, as we try to second guess what levers to best use to operate in the context of a most competitive market”, he said.

“In addition to the reality of that competition, we are also seeing supply and demand dislocations on the basis of the regulation. This means we start to narrow into smaller pools of competition, and start to second guess, almost to the point of negotiating against ourselves, in anticipation that something may not work,” Mr Juneja concluded.

Mario Rehayem, managing director for Australian mortgages and personal loans at Pepper, said that this was “the joy of having access to the broker distribution channel”.

He commented: “Brokers are nimble and very quick to vote with their feet when there is a shift in lender credit policies. You can see a dramatic swing in market share from one lender to another very quickly. 

“As lenders, we need to be able to adapt to the brokers' environment. For those lenders that are not broker‑focused, it is a new world. It is different to the days when it was simply a branch world v a broker world. Now the swing from one lender to another can be as much as 50 bps – which is a big swing. If a policy changes overnight, you can literally lose a meaningful slice of business the following day. This is the new norm, the power of digital, consumer awareness and brokers doing their bit for their customers rolled into one.”

After prudential policy changes, the next biggest concern for the panel was tied between the “inability of first home buyers to enter the market” and “risk of customer-related conduct matters tainting the industry” (both 40 per cent).

House and apartment price growth reducing or falling was chosen by three people, while unemployment rising and “placing pressure on serviceability” was chosen by two.

Deloitte’s Mr Hickey concluded: “It is worth pointing out that the prudential changes being put in place are to help sustainability and security. It was interesting that not many people saw unemployment rising as a concern, nor house prices falling. So maybe we all looked at the market from a positive perspective. Clearly, however, the regulator is seeing something in the macro economic conditions.”

AFG’s executive director Malcolm Watkins said: “[Y]ou also have the responsible lending side, which I think is even more of a threat and a fear for the regulators with spiralling enquiry costs. They want the industry to be responsible for their own activities.”

The chief executive officer of CoreLogic, Lisa Claes, added: “I think there are valid concerns in pockets of the market, including certain developments and developers within Australia. Certainly, from the forecast settlement value data we harvest, there are buildings and apartments in selected pockets, where the contract price exceeds its value at settlement.

“I think that potential risk has a strong impact on the discriminatory regulatory response to investor loans.”

[Related: Analysis: APRA action and bank rate hikes]