Australian banks grab majority share of new home loans

Most non-bank lenders were absorbed by giant banks after the financial crisis.

We might not like them but we can't stop borrowing from them. Banks are writing "almost all" new home loans in Australia after regaining a stranglehold on the mortgage market following the global financial crisis.

Research by the Royal Bank of Scotland economists Kieran Davis and Felicity Emmett found that banks have a 93 per cent share of all new loans to owner-occupiers, up from a low of 80 per cent before the crisis. They have a massive 97 per cent share of new loans to property investors, up from 87 per cent pre-crisis.

When the non-bank lenders like Aussie Home Loans and Wizard burst on to the scene during the 1990s they snatched a big chunk of the mortgage market from the banks. Before the onset of the financial crisis non-traditional lenders wrote about one in five new home loans.

But the non-bank lenders were hit hard when global financial markets went into meltdown in 2008 and most were swallowed up by big financial institutions, especially banks.

"The business model employed by these newer non-banks, borrowing money in the US commercial paper market and on-lending it for mortgages and selling the securitised debt afterwards was … unsustainable," the RBS report says.

"This approach was one of the first casualties of the global financial crisis, although the disappearance of these lenders barely seemed to register with households, probably because these lenders did not have a deposit base and their assets were absorbed by larger lenders."

View the full story in Sydney Morning Herald.