Second-tier banks have refuted claims from brokers that there is a lack of flexibility and product innovation amongst the non-majors.
Following a non-major bank’s announcement of its plans to take on the Big Four’s market dominance in 2014, a number of readers responded with their take on where the non-majors are falling short.
LMI premiums, post-code restrictions and a lack of flexibility in credit policy were all issues raised by brokers.
Marty Mcdonald, director of Mortgage Experts, said increasingly flexibility would undoubtedly see a marked increase in the non-majors’ market-share.
“The problem as I see it is two-fold,” says Mcdonald. “One, there doesn’t seem to be much product or credit policy innovation in the sub 80% LVR area from the non-majors lately. They all seem to be competing just on price at the moment.”
“Two, mostly non-majors don’t have an open policy with their LMI providers or they don’t use it, which means for above 80% LVR deals the insurer’s credit policy overrides the lenders policies, so unfortunately many non-major lenders end up having very similar credit policies as there are really only the two LMI providers.”
Mcdonald suggested non-majors look carefully at other options for LMI, including negotiations with Australian and overseas insrurance providers, or the larger second-tier lenders providing their own LMI products for non-majors.
“If they entered our market and supported the non majors with cheaper LMI premiums and importantly different credit policies (not looser policy per se just different policy) then those lenders would naturally attract business all other things being equal… I definitely think there is room for a new player to come in and disrupt the status quo.”
Australian Broker reader “Old Joe” also commented that LMI premiums for the non-majors are a deterrent for first home buyers.
“FHB will not cop 30% higher premiums for a supposedly good rate,” he said. “Numbers don’t add up for the first two years – try it on your simulators.”
Damian Percy, general manager of third party lending at Adelaide Bank said he’s “not sure [LMI premiums are] a big issue”.
“The LMI premium question is an interesting one. Obviously, some lenders have gone down the exclusivity path which can be expected to deliver some price benefit, though at the cost of flexibility.”
Stewart Saunders, national manager brokers at ME Bank, told Australian Broker
it was his understanding that “LMI premiums and policy rules are generally consistent across lenders”.
Saunders said the bank has responded to customer needs to be more flexible by implementing changes such an increase of its LVR cap for first home buyers from 95% to 97%.
Percy refutes claims from brokers that non-majors have less flexibility in their credit policies, claiming the opposite to be true.
“I think that the non-majors’ closer contact with the market and smaller size makes conversations with brokers more common and flexibility more possible,” said Percy.
“As a general proposition, second tier lenders have the benefit of nimbleness - courtesy of their smaller size - and, in my experience, a greater level of reliance on, and therefore commitment to, the broker market. For that reason, I think they (we) are more focussed on and better for brokers.”
The issue of more rigid postcode restrictions amongst non-majors was also contested by Percy.
“I’m not sure that differentiated approaches to lending locations is a tier-one/tier-two thing. From memory, the first lender to aggressively move away from some regional centres due to concerns around single industry exposures was a major. In any case, variety is the spice of life and we should expect a degree of variability between lenders,” said Percy.
Saunders added that aggressive competition between the non-majors both on fixed-rate prices and broker commissions has improved the options available to brokers and their clients as the major banks are forced to work harder to retain market share.
While Percy acknowledged that the majors are an “easier sell to consumers” he said the increased market share gained by the non-majors will continue to benefit brokers.
“In lending, as in all things, happiness is all about options. Consumers and brokers benefit from a diversified lending market delivering a range of propositions and, importantly, innovations,” he said.
“As a result, I think the vitality and health of the sector is benefiting and will continue to benefit as a result of growth in the market share of the non-majors and the non-banks.”