According to Standard & Poor’s (S&P) latest report, the non-bank sector issued 60 per cent of home loans in 2018, skyrocketing from 31 per cent the year prior.
In its Structured Finance Outlook 2019 report, the ratings agency stated that it expected alternative lenders to continue to “dominate” the home loan sector in 2019, as APRA’s strong lending standards continue to take a toll on authorised deposit-taking institutions (ADIs).
“Many Australian bank issuers remained on the sidelines in the past year, leaving the non-bank sector to pick up the slack,” S&P noted.
“Even as home-lending growth slowed to around 5 per cent, the non-banks were able to achieve lending growth rates more than double their banking peers by capitalising on a tightening of lending standards in the [ADI] sector.”
However, the ratings agency said that although the non-bank sector’s proportion of lending has significantly increased, the residential segment is remaining less than 5 per cent of total mortgages.
It suggested that although APRA has lifted its 30 per cent cap on interest-only lending, the move is unlikely to signal an increase in investor home loan adoption over the short term as many lenders will continue to strengthen their practices ahead of the release of the royal commission’s final report.
“Many lenders are applying greater scrutiny to expenses in their debt-serviceability assessments, and this is tightening many borrowers’ access to finance,” S&P stated.
“Lending standards are likely to remain more stringent in the wake of the publication of the final report on the royal commission findings, which is due to be released in February 2019.”
Customer satisfaction low during the royal commission
S&P’s findings reflect data released by Roy Morgan in the midst of the royal commission, which found that satisfaction with banks overall declined.
The research house’s August Customer Satisfaction-Consumer Banking report found that the big four banks each experienced drops in customer satisfaction, with NAB down 3.9 percentage points, Westpac down 3.6, ANZ down 2.7 and CBA down 2.5.
This has sparked millions of Aussies to look towards new providers in the non-major segment.