Major Banks May Tighten Mortgage Lending

Post by Sharat on April 9, 2010 · Under Australian Economy, Business News, banking, home loans, mortgages · Comment 

A new report authored by investment bank JP Morgan claims that demand for mortgages could soon very well outstrip the supply of credit, after a period where the major lenders rapidly expanded their share of the mortgage lending market causing them to restrict the amount of credit the make available for home loans.

The major lenders have expanded their share of the mortgage lending market from 65 per cent, prior to the onset of the financial crisis, to nearly 76 per cent today.

During the crisis, the majors sought volume growth as their means for capturing market share, after successfully achieving that objective, the focus will probably now shift towards profitability and credit quality.

“While demand for housing credit is unlikely to abate, the Australian major banks will look to achieve the best possible returns on the increasingly scarce wholesale funding they are able to secure,” JP Morgan’s Scott Manning said.

CBA and Westpac are the dominant lenders in the Australian home loan market and according to Mr. Manning both have grown their mortgage books by a combined $75 billion in the 18 months ending last December. This has meant a funding gap of roughly $50 billion, since deposits have only grown by $25 billion.

While corporate de-leveraging has reduced the burden, the wholesale funding requirement for the two lenders has increased by about $20 billion each.

Despite the increase in their funding requirements, Mr. Manning believes that a credit crunch is unlikely, since the requirement is spread over a five year period.

However Mr. Manning did point out that signs have emerged of a tighter credit market, such as lower loan to valuation ratios, and tighter credit scoring.


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