2024 - Looking Ahead in Home Loans
2024 is upon us and it has been an interesting couple of years in the mortgage business in Australia since the pandemic.
In 2023, we continued to see rate rises, taking it to a total of 13 increases since May 2022. This has been done to slow down inflationary pressures coming out the quantitative easing era of the Reserve Bank of Australia (RBA). The RBA and government will continue to monitor this situation and it is expected that there will be further rate rises and then rates to be maintained at higher levels than pre-pandemic.
At Firstmac and loans.com.au, we saw a slow start in 2023 but by the end of the year things had shifted significantly. The media talked about a mortgage cliff coming, and we certainly saw an influx of new business being written off the back of this. This is where cheap fixed-rate loans that were written when the cash rate was close to zero in the pandemic came to their maturity and reverted to a more expensive variable rate product.
RBA data shows there were 590,000 mortgages that came off fixed rates in 2022 and 880,000 in 2023.
For us this meant that retail customers and broker-introduced customers chose not to stay on expensive variable rate loans with their current bank, but rather take the opportunity to refinance to a cheaper variable rate loan. We were able to be at the front of this shift due to our market-leading pricing and but also our quick and efficient service offering.
We are hoping to see continued and stable growth into 2024.
So what to expect?
At Firstmac and loans.com.au, we think there will be more of the same opportunity in the market but increased further due to even more fixed-rate loans reaching maturity. The RBA estimates that there will be a further 450,000 fixed rate loans rolling over in 2024. The non-bank lending market will remain a competitive alternative to the banks, particularly since Term Funding Facility (TFF) money and loss-making lending has come to an end. This hurt the non-bank lending market at times during the pandemic, but larger and more experienced non-banks like us were able to weather the storm.
Towards the end of 2023, we went through ASX reporting season for the larger banks and saw evidence of their slowing growth towards the end of the year, with the largest bank in Australia seeing a decline. This is a direct result of no more TFF and significant cash back offers in the market. Consumers and their brokers are wise and are not to be underestimated - they have taken their cash, but they aren’t casual enough to stick around for non-competitive rates and service. This will create the most opportunity for all lenders.
What about the mortgage prisoners, do they exist? We think yes, and we are seeing some enquiries for new loans that we simply can’t approve and service due to the number of cash rate increases. This means that customers who want to switch from their current more expensive lender, might not be able to now due to debt serviceability issues. This might cause some arrears issues for some of the banks in the coming 12 months as people start to use any spare cash they hold in redraw.
Speaking of arrears, it should be noted that because we are a super prime lender, we didn’t see some of the uplift in arrears that our competition saw on average, proudly putting us in one of the lowest mortgage arrears groups in the country.
This was the same for most prime lenders during the year, however, it will be of concern to the wider lending industry in the coming 12 months, particularly with consumer sentiment results released by The Westpac-Melbourne Institute which show the latest January result is in the bottom 7% of all observations since the survey was first run in the mid-1970s.
Households are starting to feel the pinch and lenders who serviced loans in the last few years at low or zero buffers might see an impact in their arrears and loss numbers.
Across our many businesses, we speak to consumers, brokers, and investors daily. One common theme is that with rate rises over the couple of years, it is wise to look at where households can save money. Mortgage holders will always look to refinance where they can as this will give them the biggest relief.
Surprisingly, we haven’t seen investment property owners rush to exit the market. Usually in a downturn, investors are the first to exit the market as interest rate pressures hit and this in turn usually causes housing prices to decline. Now, due to housing shortages in Australia, we are also seeing many investors hold on to their assets to take advantage of the good rental returns at the moment. Mainstream media indicates that investors are starting to sell, but losses aren’t evident, probably due to property prices holding up.
Like any other business, we have come out of a busy few pandemic years, and we are looking to the future and what comes next. There are some pretty exciting things we are working on across our entire group.
Watch this space for some innovative changes in 2024 – we haven’t entered our 45th year in business by staying still!