Banks tighten grip on lending market

The banks upped their share of the $1.2 trillion mortgage market during the March quarter, according to the latest figures from the ABS.

March’s figures showed that banks held 91.5% of Australian mortgages – a 1.5% increase on their December 2010 share of 89%.

Credit unions and building societies saw their figures drop from 8.3% to 7.4% over the same period, while the non-bank sector saw its slice of the market more than halve – dropping from 2.7% to 1.2%.

Lamenting the current lack of competition in the mortgage market, the Mortgage & Finance Association of Australia (MFAA) noted that the non-bank market share has seen a dramatic drop since its peak of 15.2% in 2003 – when the banks only held 76.9% of the mortgage market.

"The non-banks brought a lot of competition to the mortgage market," said MFAA chief Phil Naylor. "They found ways to lower their interest rates and create incentives for home buyers to borrow from them. Mortgage margins across the entire market decreased with the influence of lenders like Aussie and Wizard. To see the non-banks falling to almost one per cent of market share is worrying from a competition point of view."

While Naylor admitted that the GFC helped to curtail the non-bank funding model, he also stated that recent government moves to ban exit fees had coincided with the non-bank market share falling from 3.3% to 1.2% in five months.

"We know from recent history that when we have strong non-bank lenders, we have lower-cost mortgages," said Mr Naylor. "The current trends should be worrying for consumers."