Big four banks losing market share

Smaller lenders beating the banks to the punch

Mike King

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Published October 25, 2013 9:54 am AEDT

Smaller home loan lenders are increasing their share of the mortgage market, at the expense of the big four banks.

According to Australia's largest mortgage broking firm, Australian Finance Group (AFG), more than 25% of all loans it sold in September were financed by lenders outside the big four banks. AFG general manager of sales and operations Mark Hewitt said, "Competition in the mortgage market is as strong as it has ever been, and it's the non-major lenders who have been fuelling this. They are continuing to put pressure on major lenders, who have been compelled to respond. This has resulted in unprecedented levels of discounting with the clear winner being the borrower."

In March 2013, non-major lenders accounted for just 15.5% of fixed rate home loans, but this figure rose to 29.2% during September 2013, according to AFG. The company says non-majors accounted for 26.3% of all new home loans at the end of September, compared with 24.56% in June and 20.6% in March this year.

ING leads the non-majors for fixed rate products, with 8.2% market share in September, while Macquarie Group (ASX: MQG) accounted for 10% of refinancing deals in September, consolidating its sustained growth this year says AFG. Macquarie has more than doubled its share of all mortgages amongst non-majors, from just 2.5% in October 2012, to 6.4% in September this year. The investment bank has been pushing loans through mortgage brokers such as Yellow Brick Road (ASX: YBR), Homeloans (ASX: HOM) and Mortgage Choice (ASX: MOC), as it seeks to cut into the estimated 80% plus market share of the four major banks.

Borrowers are increasingly favouring fixed rate home loans amid growing expectations that the Reserve Bank has finished cutting rates and the next move could potentially be upwards.

Foolish takeaway

The news is bad for bank shareholders on two fronts. Increased competition means they are forced to cut their margins to compete, and losing market share means they aren't writing as many loans as before, and therefore less revenue will be coming in.

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