Genworth sees bipolar mortgage industry

Find below Genworth’s latest mortgage industry survey which shows very depressed lenders combined with a very enthusiastic brokers, among other discussion worthy factoids:

Lending slows in 2012, with most lenders expecting continued reductions in credit growth ahead
• The majority of lenders have experienced slow credit growth over the past year.
• Queensland lenders have struggled over the past year, largely due to higher than average unemployment rates and tightened credit standards.
• Low property valuations have impacted the level of demand from potential investors and refinancers.
• Lenders expect consumers to continue deleveraging and saving in 2013, primarily because of employment insecurity.
• Lenders are expecting a renewed focus on optimising IT/processes and cost reduction initiatives.
• Lenders will rely on maximising their channel strategy, improving customer service and new approaches to segmentation in order to reduce the impacts of the low credit growth environment.

Brokers are optimistic about 2013
• Brokers are more optimistic than lenders about credit growth in 2013.
• There was a general consensus among brokers that the drop in lending is mostly due to a lack of demand from FHBs.
• Many brokers agreed that lenders needed to clarify their credit scoring policies.
• Brokers need competition between lenders in order to grow their business in a low credit growth environment.

Online channels become increasingly important
• The majority of lenders plan to make investments in the online channel over the next year.
• Brokers have experienced an increased number of leads from online channels.
• Lenders are most likely to agree that the optimal online application experience is online followed by further contact options.
• Brokers are more likely than lenders to believe the online channel will cannibalise the branch, mobile lender and broker channels.

Social media use grows as a communication and branding tool
• Lenders are using social media to stay relevant to customers, though it was acknowledged that this is currently not producing revenue benefits.
• Brokers are using social media to build brand awareness and credibility amongst potential customers.  Lenders are less likely than brokers to believe affordability will improve for FHBs
• Almost all (12 out of 14) surveyed lenders believe affordability for FHBs will either stay the same or worsen over the next 12 months.
• Lenders and brokers agree that changed government incentives are unlikely to stimulate demand from FHBs.
• Brokers believe that FHBs have high expectations, and want more than they can afford.
• Lenders and brokers agree that the FHB perception of needing more than 20% of the property value as a deposit often stems from their parents mentality, as highlighted in the September 2012 Genworth Streets Ahead report.

Data analytics fuels innovation
• Lenders and brokers were most likely to agree that FHBs would benefit more than other segments from product innovation.
• Brokers were more likely than lenders to agree that selfemployed borrowers and refinancers would benefit from product innovation.
• The majority of lenders agreed that innovation in the mortgage market will be delivered through data analytics and customer insights

Home Grown Report 2012

David Llewellyn-Smith
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  1. Brokers are more optimistic than lenders about credit growth in 2013

    This just proves that mortgage brokers tend to have “wishful thinking syndrome” even more than lenders 😉

  2. I have previously described Lenders Mortgage Insurance as triple distilled risk.

    This report shows no lack of appetite for that risk. The ‘industry comments’ they have chosen to include are illuminating:

    “For the market to kick along, you need those FHBs in that bracket. You need 20 competing, which pushes that price bracket and then the second tier price goes up.”—Lender, non-bank

    You wish!

    The FHB’s have simply abandoned homeownership as a life objective. Even if they wanted to, the bank wont lend. The up trend is exhausted.

    Don’t Buy Now!

    • The importance of FHBs to the market is overlooked by many. They make up only a small percentage of sales every year, but they are the enabler for everyone on the “property ladder” to take the next step as well (PPOR upgraders).

      FHBs, Don’t Buy Now!

    • This is precisely what my wife and I have done. We just got on with living.

      Gave up on home ownership and just got on with having a couple of kids.

      It was not easy, there was a lot of pressure that you need your own home before you start your family.

      Now the saved deposit pays a small but nice tax free income via interest while my wife is not working for a few years.

      There’s down sides to renting yes, but there is upsides too. Once you’ve broken out of the mindset and just got on with life, the desire and the pressure to buy really wanes.

  3. I know it’s all about refinancing costs, but for the life of me, I don’t know why a lending institution would be happy to lend on anything, no matter what it is, when interest rates are low. The chances of future non-performance must get higher, the lower rates go……

    • I think there may be some psychology study showing that people who work and thrive in FIRE sectors must have high confidence, positive attitude, and always rosy expectation towards everything especially their industries prospect to the level of delusion 😉

    • Who cares about risk of future non-performance?

      Moral hazard (ie, government taxpayer and their children backstop) is now a well-established and indeed, “guaranteed”, fundamental principle of the financial sectors’ business model.

    • It’s all about the spread really between saving and lending rates and capital held by the banks. The spread of loans has been getting wider since the Gfc. Also potential gains on housing are inversely proportional to interest rates and the inverse to something that approaches zero is something that can approach infinity. This is assuming that Australians will continue to borrow at their maximum capacity as interest rates fall. Until interest rates hit zero there is room for the debt level to keep rising exponentially. which of case means ever more profits for the banks. Hence why lower interest rates cause the population to become more interest rate sensitive late. It’s easy to get addicted to a drug but once you get used to it the withdrawal of going back is so much harder in this case lower rates.

  4. “There was a general consensus among brokers that the drop in lending is mostly due to a lack of demand from FHBs.”

    Interesting. Spruikers have insisted to me that there is no problem with the market, affordability is unchanged from a decade or more ago and housing is easily affordable to most who work. I know that this is nonsense of course, but I guess the job of a spruiker is to spruik, to go to any and all lengths to prove that it’s just a little bit of a cyclical soft patch.

    Hmm – maybe the apartment building craze is actually coming at a fortituous time for the industry? If young people really are increasingly giving up on the idea of home ownership due to the cost and the actions of government/RBA are preventing significant price falls in the short to medium term by supporting the ability of investors and upgraders to continue selling real estate to each other, perhaps the boom in apartments will step in to fill the void?

    On other forums, there are those who like to engage in swaggering boasts that the ongoing malaise of the detatched house building industry will simply allow them to extract ever-higher rents from those who do not own property due to tight supply – if young people’s attitude toward home ownrship is being forcibly altered, perhaps they should be concerned about the apartment building boom.