Industry leaders and academics discussed how the mortgage industry’s future will play out at a half-day session organised by The Australian Centre for Financial Studies (ACFS) yesterday.
The Australian banking sector has a significantly higher ratio of housing mortgage loans than other OECD countries, with the country’s bank balance sheet having more than 60% residential mortgage loans and almost 10% in commercial real estate loans.
With increasing regulation of capital and liquidity requirements, and intense competition in the domestic market for retail deposits, access to bank funding has been potentially constrained.
Key speakers discussed to what extent these changes will impact on the supply of home mortgages through the banks, whether there are alternative sources of funding for such purposes, whether the securitisation market will make a return to assist with funding and whether superannuation funds will play a role.
ACFS executive director, Professor Deborah Ralston, said a well-functioning mortgage industry worth about $1.3 trillion is critical to the health of the Australian economy, with the need for a competitive, innovative market never more apparent.
“No doubt it will be an important part of the Financial Services Inquiry, with the issues raised today, such as the first home buyer loans being at historic lows and the impediments to the growth of securitisation being just two examples of where there’s a need for a re-thinking of the policy architecture.”
Dr Rodney Maddock from Monash University talked about the demand still outstripping supply. He said supply has been slow to respond due to natural lag, regulation, construction costs and population growth.
Maddock also talked about how it is easier to get and service loans, with flexible financing and falling inflation. The lower real interest rates have increased servicing capacity, he said.
The industry can expect a gradual decline in prices as supply catches up to demand, he said.
CEO Phil Naylor talked on the need for greater competition and innovation in the mortgage market, and said securitisation is the best option for achieving this.
Mortgage brokers are an agent for change, said Naylor, and regulation of the industry should be pro-competition or at least revenue neutral.
Australian Securitisation Forum CEO Chris Dalton noted residential mortgage-backed securities are getting back to pre-GFC levels, but liquidity in the secondary market remains a missing ingredient.
CEO Mike Russell said the strong property market is due to investors, the belief that current low interest rates will continue and population growth.
But the fact that first home ownership levels at historic lows is a real social concern and the state and federal governments are short-selling first home buyers, he said.
The forum’s audience included mortgage brokers, regulators, economists and finance academics.