Cheaper home loans sustain Westpac

Westpac reported some attractive metrics in the home loan segment for the bank's 2009 financial year.

The group finished the year with a 26 per cent share of housing credit, according to APRA data (23 per cent according to the Reserve Bank).

Home loans to customers in Australia increased 17 per cent to $36.8 billion. Overall The Westpac Group housing credit growth was 2.2 times the financial system (the RBA measure of housing credit) and 1.5 times the banking system (the APRA measure).

In the Westpac Retail & Business Bank, mortgages increased 19 per cent. In the St George and BankSA brands, growth was a little more subdued at 12 per cent.

Rams Home Loans is also starting to perform for Wesptac, accounting for more than 20 per cent of home loan growth. Rams is also now profitable for Westpac, the bank says, about two years after taking on the brand.

These are impressive numbers, and especially so in the context of the operational difficulties at the bank's processing centre in Adelaide late last year and early this year. Rams has also had service problems.

And while these service defects have mostly applied to loans submitted through brokers, brokers still have presented ample new business to the bank. Loans sourced from third parties increased to 45 per cent over 2009 from 38 per cent in 2008. The reintroduction of the Rams-branded loans to the broker network earlier this year helped push up that percentage.

On the bank's Rams and Westpac loans, however, Westpac seems to have taken on board a lot of new business at discounted rates.

The Rams "rate relief" loan is 90 basis points off the already discounted variable rate for the first two years. St George had a heavily discounted loan with a rate of less than five per cent up until recently that was popular with brokers.

The bank also may not have been as tough on borrower assessments as it might be, using a rate buffer of 170 basis points to assess capacity to repay.

If RBA raises the cash rate from the current level of 3.5 per cent to somewhere around "neutral", say to more than five per cent, that would eat up all the servicing buffer.

Westpac chief executive Gail Kelly defended the bank when asked about this theme at the media briefing yesterday.

Kelly said growth had been the result of investment in distribution and not aggressive pricing.

She said: "We have been responsible. We have been very considered in the way we have tackled the first homebuyer segment, with lower loan to valuation ratios, higher loan serviceability requirements and genuine savings.

"Our first home buyer segment outperforms the total book. I am very comfortable."