Australia’s lending market continues to face headwinds, with several major players reporting a slowdown in mortgage activity.
This month, Bank of Queensland (BOQ), AMP Bank, Australian Finance Group (AFG) and Loan Market Group (LMG) all reported declines in mortgage lodgements or new lending activity, highlighting the mounting pressure across the market.
BOQ’s home lending book fell by 8% in the year to 31 August. That's roughly $4.6 billion. AMP Bank’s residential mortgage book also contracted, shrinking by around $407 million in the quarter to 30 September. Meanwhile, mortgage lodgements at aggregation giant AFG dropped by 12.4%, year-over-year, in the September quarter. At LMG, new lending, excluding refinancing, was also down, falling 6% in the last two weeks of September.
With interest rates still elevated, borrowing capacities under pressure, property prices falling, inflation continuing to bite and the cost of living climbing, borrowers are facing a challenging environment. Combined with broader economic uncertainty, these conditions are prompting many to delay their borrowing plans.
"There's a lot of negativity around how things are in the Australian economy right now," Niti Bhargava, founder and principal broker at Melbourne-based brokerage GB Financiials, told Australian Broker. "People are handcuffed because there is less borrowing capacity because of higher interest rates."
The broker said at her firm, mortgage applications are down "across the board."
"New purchases are definitely taking longer and purchases are down. But also, so is refinancing," Bhargava said. "Things are definitely different this year.
"People are also, kind of, waiting for some sort of change in government or something. And then they're not making decisions in a timely manner. That's impacting the entire market, for sure," she continued. "But people are not thinking on a macroeconomic level. People are very media-driven, or social media driven, rather than listening to the experts."
With borrowers increasingly cautious and decisions taking longer, the question now is how long the slowdown will last.
"We're in a slowdown at the moment. And I think that's going to continue for some time," said Leo Gagic, chief executive officer of the Finance Broker Association of Australia (FBAA). "But like all markets, markets eventually bounce back. I don't think it's going to be forever. There are external pressures, like interest rate change and other aspects. So I think we're going to be in it for a while. But eventually it will bounce back."
Bhargava was less optimistic, anticipating another interest rate hike at the Reserve Bank of Australia's (RBA) November meeting on monetary policy.
"I wish I could say there will be a rate reduction in the next year or so, but I don't think so," she said. "Once the government state elections are over, then I think things will probably start settling down."
While a slowdown in lending activity presents challenges for brokers — putting pressure on brokers’ revenue, particularly when property transactions take longer to progress and fewer borrowers are ready to commit — it also creates an opportunity to reassess business strategies, strengthen client relationships and identify new avenues for growth.
In fact, a downturn does not necessarily mean a brokerage business has to come to a standstill. For brokers, the challenge is to remain resilient through a quieter period while ensuring they are well-positioned to capitalise when activity picks up again.
"Proactively is really, really important," said Gagic. The CEO said that includes "diversification and looking at new ways of lending. So not having all your eggs in one basket and looking at other opportunities.
"Opportunities also to do any educational development," he continued. "So while there's more downtime, use that time smartly to educate yourself, or look at ways that you can diversify your portfolios. That's another great opportunity in this time. And certainly, as I keep saying, ring-fencing your current clients. So making contact, using the human element of relationship, making contact and following up."
Bhargava agreed adaptability and portfolio expansion are important.
"We are definitely diversifying a lot, not just relying on the refinancing market, or purchases," the broker said. "We are now doing a lot of asset finance. We are doing a lot of business lending as well at the same time. Diversification is the key."
