Economic tailwinds could prolong mortgage lending recovery: Mortgage Choice

Strong population growth, interest rates remaining at historically low level, “fierce competition between lenders” and low unemployment are some of the tailwinds that could prolong the recovery in the mortgage lending and housing market in 2012, according to Mortgage Choice CEO Michael Russell.

“Over the course of the calendar year, we’d like to see the market continue to rebound and there are reasonably strong tailwinds to suggest it just may,” Russell said following the release of “solid” interim results to December.

Mortgage Choice reported a 16.7% increase in loan approvals over the six-month period from $4.8 billion to $5.6 billion, with the mortgage broking franchise’s share of the home loan market rising from 4.1% to 4.5% over the six-month period, its highest level since 2006.

“The good news was the rebound in housing finance [over this reporting period] with December a particurlarly strong month with the highest value of commitments in two years,” says Russell.

“This auger well for housing finance market and all participants within it.”

However, he also noted a number of headwinds that could curtail the recovery, including the unpredictably created in the minds of consumers by the major banks moving rates outside of the RBA (“the new normal”), funding costs impacting lenders, the continued uncertainty in Europe, ongoing housing undersupply issues and consumers continuing to deleverage their debt and save more.

Despite the increased competition in lending Russell said attempts by the federal government to create a “fifth pillar” (through measures such as the ban on exit fees) outside of the big four banks had failed, with the smaller non-bank lenders and credit unions still struggling to penetrate the market.

The big four banks accounted for 60% of all loans approved by Mortgage Choice over the six-month period, unchanged since previous periods, with ANZ and the Commonwealth Bank accounting for 43% or more than two out of every Mortgage Choice loan approved.

Including big four bank subsidiaries Bankwest and St George, the major banks’ share of Mortgage Choice approvals stands at 76%.

Russell says non-banks and credit unions are struggling with higher funding costs than the major banks though many of them continue to offer cheaper rates then the major banks.

“It may be an issue of perceived flight to quality,” he says.

Taking a look at the bottom line, Mortgage Choice reported profits of $6.4 million for the six months to December 31, down 26% on the $8.8 million recorded in the previous six-month period to June 30 2011.

The drop in profit was attributed to higher operating expenses and lower-than-expected revenue from comparison website helpmechoose.com.au. The website made a $1 million loss for the six-month period.

Russell says the group has put in the necessary measures to remedy the results being achieved through the online venture and expects it to become profitable when full-year results are reported in mid-2012.

The group’s total loan book written by brokers in its franchise network and through aggregation arm LoanKit was up 5.6% to $43.5 billion.

Mortgage Choice grew the number of brokers in Loankit by 20% to 234 over the six-month period, with the business recording monthly settlements in excess of $100 million.

The group has 372 franchises (up from 354 a year ago), with the biggest proportion in NSW (134).

Settlements per loan consultant increased from 28 to 32.

Mortgage Choice brokers earned a collective $68 million in commission payments for originating loans, unchanged from the same six-month period in 2010.