Australian Mortgage Market: Forecasts and Future Opportunities 2016

Australian Mortgage Market: Forecasts and Future Opportunities 2016

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Executive Summary

We estimate that growth in the value of balances outstanding for both owner-occupier and investment residential mortgages will be 6.1% in 2016, a slight decrease on the strong performance in 2015. The market will continue to decelerate over the forecast period as owner-occupier growth tapers off and investment property lending fails to make up for the slack.

Key Findings

First-time buyers remain the weakest part of the market, accounting for just 14.8% of gross advances in 2015.

Growth in investment property lending flatlined in light of Australian Prudential Regulation Authority restrictions, with owner-occupier lending surging at the same time.

Lending to foreign buyers is up considerably, but the majors have pulled back from foreign investors in light of fraud and the potential oversupply of apartments in key investment markets.

Refinancing has continued to gain as a share of gross advances, increasing the churn in the market and contributing to net interest margin compression.


Verdict Financial's "Australian Mortgage Market: Forecasts and Future Opportunities 2016" analyzes the Australian residential mortgage market, with coverage of both the investment property and owner-occupier market, including first-time buyers.

Specifically the report:

Analyzes relative performance of the major sectors of the Australian mortgage market, including both mutual and bank as well as non-ADI lenders.

Reviews the drivers behind recent market performance.

Forecasts balances outstanding for both mutual and bank lenders, looking at the evolving growth of the investment property, owner-occupier, and first home buyer segments.

Forecasts future drivers of growth and product features.

Reasons To Buy

Which factors will impact the supply of mortgage lending?

Which factors will affect consumer demand for mortgages?

Which sectors offer the best prospects and opportunities for expansion over the next few years?

What will be the market share of key mortgage sectors over the next few years?

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Ankur Gupta, Head Marketing & Communications



The residential mortgage market in Australia is expanding at a slowing pace, weighed down by high prices in key city markets

Key findings

Critical success factors


The Australian mortgage market is moderating from the peak of the boom

Australia's residential mortgage market was worth A$1,580bn at the end of 2015

Mortgage growth has become lopsided, and is derived almost entirely from owner-occupiers

Higher rates and tighter criteria have taken the growth out of the once booming investor segment

First-time home buyers are still being squeezed from the market

Mortgage underwriting remains dominated by bank ADIs

Market profitability is under strain as net interest margins remain at all-time lows

Even the major banks are struggling with margin compression

Market activity continues to heavily feature refinancing, with talk of a construction glut not figuring prominently in lending data

The strong uptick in gross advances continues to moderate from the peak of the boom starting in 2013

With rate increases unlikely in the short term, the fixed-rate rally has fizzled


Australian mortgage lenders can expect continuing market expansion, albeit at a slower rate

Most growth will come from bank lenders as the mainstay of the market

Despite strength among individual players, conversions will see credit unions and building societies end up with lower balances

Mortgage lending over the forecast period will be affected by various factors

Factors that are relevant but discounted over the forecast period


The owner-occupier market will be driven by consumer confidence

Improving but erratic consumer confidence will boost growth at the margins of the owner-occupier market

Most of Australia is still seeing property price increases, barring the mining towns

Investor activity will be moderated by the glut of inner-city apartment completions

Demand from foreign investors has become a contentious element of the market

While dampened by heightened demand for fixed-rate mortgages, loans with offset facilities will remain a mainstay of the market

Negative gearing and investment loans will continue to support demand for interest-only mortgages but offer little prospect for growth

While forecast to grow in value, the market share of reverse mortgages will remain more or less unchanged

Non-standard loans will remain niche as banks remain wary of risk

Distribution trends still favor further growth in the broker channel

Australian mortgage distribution dynamics have changed considerably since the financial crisis

Broker-only deals have proliferated, and consumers are increasingly using the channel for refinancing

Broker commissions are under review, which may dent growth in volume


Abbreviations and acronyms



Verdict Financial's 2016 Retail Banking Survey


Further reading

About Verdict Financial


Figure 1: APRA restrictions on investment property mortgages have reversed the dynamics of the market

Figure 2: Residential mortgage balances outstanding are mostly held by traditional banks

Figure 3: The margin from mortgage lending is at an all-time low

Figure 4: Non-performing loans remain subdued, but have increased modestly

Figure 5: Gross advances are still growing at double digit rates

Figure 6: Refinancing continues to trend up, growing balances outstanding by less than total gross advances would suggest

Figure 7: Recent RBA cuts to the cash rate have killed off the fixed-rate loan rally

Figure 8: Auswide has responded to uncertainty in the standard variable-rate market by offering tracker mortgages

Figure 9: A lack of rate increases and a steady economy will fuel continued expansion

Figure 10: The owner-occupier segment will power the market over the course of the forecast

Figure 11: Conversions will continue to drain the mutual sector

Figure 12: Factors affecting the growth of mortgage balances outstanding in Australia

Figure 13: Consumer confidence is tracking upwards from its 2015 low, supporting owner-occupiers and first home buyers alike

Figure 14: Annual price changes in capital city property markets, tracked quarterly

Figure 15: Offset mortgages will account for almost half of all loans in the market

Figure 16: Interest-only loans will peak in 2018, with balances continuing to grow

Figure 17: Reverse mortgage market share will record minimal growth

Figure 18: Brokers are originating close to half of new loans

Table 1: First-time buyer activity in Australia, 2010?16e

Table 2: Gross advances and approved foreign investment for residential property (A$m), 2010-11 to 2014-15

Table 3: Foreign buyer property taxes and surcharges, 2016

Table 4: Non-conforming residential mortgage loans on ADI balance sheets, 2011-16f (A$m)

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ANZ, CBA, NAB, Westpac, Greater Bank, HSBC, Beyond Bank

Residential mortgage, Australia, retail banking, mortgage, investment property, owner-occupier, first home buyer, fixed rate mortgages, variable rate mortgages, offset account, interest only, reverse mortgages

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