Modest growth tipped for mortgage lending in 2013 but investor confidence returning: Deloitte

Property prices are expected to grow by a maximum of 5% over 2013 but could remain flat over the course of the year, according to the findings of the 2013 Deloitte Australian Mortgage Report.

The findings are based on the sentiments of a roundtable discussion of senior executives from the major banks, non-bank lenders, mortgage brokers, mutual lenders and mortgage insurers.

The sentiment from roundtable participants is that consumer confidence is the main reason borrowers are holding back.

In November, the benchmark Westpac-Melbourne Institute consumer confidence index reached its highest level since April 2011, but is still up only 0.9% on a year ago – despite rate cuts totalling 125 basis points over this time frame.

“The sentiment of the roundtable was that despite the combination of interest rate reductions and stronger personal balance sheets, the current flat property prices combined with what was perceived as real systemic issues around consumer confidence, would be likely to keep borrowers sitting on the fence in 2013,” says the Deloitte report.

“However, given that Australia suffers an endemic shortage of housing stock, even in a slower market it is expected that property prices will remain ‘there or thereabouts’ if not achieve a modest level of growth. 

The key trend identified by the roundtable was householders continuing to deleverage their debt as well as investor confidence returning as "disillusionment with equities continues and property yields improve".

Deloitte financial services partner James Hickey says household deleveraging  is currently "mostly ancillary debt – credit cards and personal loans etc. – but it also includes the high end investment property sector.

“As interest rates fall, lenders are seeing borrowers taking the opportunity to reduce their mortgages rather than increase their spending,” he says.

As a consequence of this deleveraging, demand for mortgages is likely to remain at subdued levels, with settlements forecast to grow at around 5% compared with current annualised growth of 4.7%.

While this growth is modest against historical trends, the report notes that unlike other mature international markets like the US and the United Kingdom, “Australia’s mortgage sector has maintained momentum and continues to grow”.

However the days of 10% to 15% annual mortgage growth won’t be returning any time soon, Deloitte says.

The report says lenders will look to retain customers and cross sell them other products rather than “competing aggressively for new customers”.

And due to deposit costs remaining high, there will be further pressure on bank margins making it harder for banks to pass on RBA cash rate reductions in full.

The full list of round-table participants were Mortgage Choice (Michael Russell, chief executive officer), CUA (Tony Taylor, chief financial officer),  HSBC: (Alice del Vecchio, head of mortgages), Deloitte (Louise Denver), Genworth (Paul Caputo, chief risk officer, Pepper Home Loans (Todd Lawler, treasurer), Aussie Group (John McDonald, chief financial officer), AMP Bank: (Robert Slocombe, chief operating officer), Deloitte (Ian Harper, Deloitte Access Economics), Commonwealth Bank: (Clive van Horen, head of mortgages), Westpac Group (Nick Bateup, head of mortgages) and  Firstfolio (David Hancock, chief executive officer).