Latest NewsBig Four Banks to Tighten Reins on MortgagesSunday, 25 December 2016

Demand for home lending could soon outstrip supply, as the major banks restrict mortgage credit after a period of rapid market-share expansion, according to a report by JPMorgan and Fujitsu.

JPMorgan banking analyst Scott Manning said the big four, which have expanded their share of the mortgage market from 65 per cent to 76 per cent since the onset of the financial crisis, could now switch their focus to profitability rather than volume growth.

"While demand for housing credit is unlikely to abate, the Australian major banks will look to achieve the best possible returns on the increasingly scarce wholesale funding they are able to secure," Mr Manning said.

Mortgage giants Commonwealth Bank and Westpac, he said, had grown their household assets by $75 billion in the 18 months to last December, leaving a funding gap of $50bn after deposits grew by only $25bn.

While corporate de-leveraging had lessened the burden, the wholesale funding requirements for the two banks had risen by about $20bn each.

Mr Manning said there would be no credit crunch, because the increased funding task was spread over a five-year period. However, signs of credit tightening were already emerging, including reduced loan-to-valuation ratios, lower discounts on professional packages and tightening of credit scoring, and a greater emphasis on multi-product relationships rather than plain lending.

The re-emergence of business credit growth would also divert funding to business banking.

Fujitsu executive director Martin North has rejected suggestions of a housing bubble, despite his own prediction that prices would rise at 12 per cent a year for the next two years.

Structural factors, including population growth and an under-supply of housing stock, were behind the gains, Mr North said, adding that it represented a "15-year or more problem".

But this was no comfort to first-home buyers, as housing affordability continued to deteriorate. Mr North warned that deteriorating housing affordability could remove a proportion of the population from the housing market, and possibly lead to "social unrest".

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