A wave of fierce competition for the best - low loan to valuation ratio - mortgage business is set to break out in Australia's harassed banking sector.
The volume of new home loan business handled by Mortgage Choice fell four per cent over the five months from April, chief executive Susan Mitchell told the company's annual meeting yesterday.
Monthly loan approvals averaged A$32.5 billion over the year to June 2018, but Mitchell said a slowdown in activity in the June quarter continued into the current financial year.
"Following the first round of royal commission hearings we have seen a reduction in approvals to approximately $31.3 billion arising from a softening property market and a tightening credit market," she said.
Mitchell said she expected the tightening credit environment to have an impact on the level of loans settled through Mortgage Choice in the current half.
Phil White, CEO of QBE Lenders' Mortgage Insurance told Banking Day "all our lenders more cautious, credit growth is more subdued".
Many of his banking clients, he said, "want to get sub 80 per cent P&I loans."
Lenders are responding by rationing credit in the riskier sectors and targeting the same mass market niche, dominated by owner-occupiers.
White said he was "aware of some product initiatives in the mortgage space" planned for the remainder of the spring and summer.
"So it's good for home buyers, an opportunity for them to get into the market."
Mitchell told her shareholders that "whilst it's too early to tell what the impact of the changes in the property market and a tightening credit regime will have on our annual settlement results for the 2019 financial year, we are seeing a recalibration in the length of time it takes to get a loan application through the process.
"Borrowers are being asked to supply more backup, living expenses are falling under additional scrutiny and borrowers are borrowing less."
This outcome was engineered, in part, by the policy measures enacted by the Australian Prudential Regulation Authority, initially via caps on growth in investment lending and, since April 2017, a clamp on interest-only lending, limited to 30 per cent of new residential loans.
QBE's Australian Housing Outlook report for 2018 (released this morning) surveys the effectiveness of these measures and their inconsistent impact across Australia.
Following "an extraordinary" 84 per cent rise in house prices in Sydney between 2012 and 2017, they have declined 7.6 per cent in 2018.
House prices in Sydney "are expected to fall a further 3.5 per cent in 2019, before bottoming in 2020 and rising by 2.3 per cent in 2021," the housing outlook says, in commentary prepared by BIS Oxford Economics.
In Melbourne, house prices lifted by 69 per cent between 2012 and 2017, before falling 1.6 per cent this year.
"They are expected to fall a further 4.2 per cent in 2019, before rising slightly by 0.6 per cent in 2020 and strengthening by a further 1.2 per cent in 2021."
The analysis highlights the divergent dynamics, with house price growth forecast in most other major cities (as strong as 10 per cent in Canberra), while oversupply of apartments will continue to drag down prices, at least in Sydney, Melbourne and Brisbane.
While APRA abolished the 10 per cent cap on annual growth in total bank exposures to investors effective from July, the BIS Oxford Economics analysts project that "this is unlikely to cause another rebound in the level of investor lending.
"APRA has stipulated a number of additional criteria that banks must comply with before approval is given to remove the investor cap. Furthermore, across the large cities, limited growth in capital gains and lower yields are now deterring investor activity."
Phil White assessed the experiment with macroprudential favourably.
"I think the RBA and APRA achieved their goals.
"It has had some contagion effect, from investor loan into owner occupier, and makes consumers wary."