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• 01 Monday August 2011 - Social media and the private bank
• 28 Tuesday June 2011 - Fraser review to favour Dutch system
• 27 Monday June 2011 - The Challenges for Homebuyers - Switzer Interview - Alan Shields, RFi and Ellie Commerford, Genworth
• 25 Saturday June 2011 - Trouble on the home front
• 09 Thursday June 2011 - First home at 31
• 02 Thursday June 2011 - Private Banking: Sky Business Interview with Alan Shields, Director, RFi
• 01 Wednesday June 2011 - Cream of the Crop
• 20 Wednesday April 2011 - Bespoke banking: making the most of private banking
• 06 Wednesday April 2011 - Pooled funds lose cash
• 31 Thursday March 2011 - Australian Homebuyer Confidence A Disaster
• 31 Thursday March 2011 - Living costs the big worry
• 30 Wednesday March 2011 - Qld home owners struggling after floods
• 23 Wednesday March 2011 - Non-banks nab market share
• 19 Saturday March 2011 - Lending Awards
• 14 Monday March 2011 - Lenders need to offer more innovative funding models
• 11 Friday March 2011 - The Australian Mortgage Conference: Sky Business Interview with Alan Shields, Director, RFi
• 11 Friday March 2011 - Global banks queue up for entry
• 10 Thursday March 2011 - Australian housing at risk from further crises
• 10 Thursday March 2011 - 40-year loan plans as funding costs rise
• 10 Thursday March 2011 - Soaring house prices may spark mortgage crisis
• 28 Monday February 2011 - Welcome Aboard' : the importance of onboarding
• 03 Monday January 2011 - Engaging the New Generation

14 March 2011

Lenders need to offer more innovative funding models

Australian Property Investor


Increasing the number of mortgage lenders isn't the answer, however new funding models and improved adaptation to new technologies is, according to RFi research director Alan Shields.

Speaking at the Australian Mortgage Conference last week in Sydney, Shields identified the four major pressures currently facing the lending market: population growth, funding issues, new technologies and catastrophic events.

Shields said lenders must act now in response to demand from governments and consumers to provide more innovative and more affordable options and work with the numerous forces driving change, such as Asia's economic acceleration and population growth in Australia and the region.

He said no one wants to buy mortgage-backed securities right now, but if lenders are to make a profitable return without lumping it on the consumers, selling mortgages to investors is another avenue.

Currently lenders rely heavily on using consumers' banking deposits to fund loans followed by the interest on the loans, said Shields.

He said that in Canada, 69 per cent of home loans are written by deposit-taking financial institutions while the other 31 per cent are funded by other non-deposit taking lenders and mortgage-backed securities insured by the Canadian Government.

Because the Canadian Government had insured the mortgage-backed security investments, when the GFC (global financial crisis) hit and elsewhere these investments dried up, in Canada they soared in value, he said.

"Australia would benefit from investigating similar solutions as well as other products that work well in overseas markets," Shields said.

"We are already seeing shifts in housing and population, and the types of financial products being developed will need to cater for new conditions such as Australia's ageing population, urbanisation and the trend of people becoming more connected and better informed via the internet and social media," said Shields.

"With new technologies, when today's teenagers start borrowing, they're going to expect to set up a loan online, not walk into a branch; this is what the market needs to look at, better distribution, better product and better service."

With 150 different lenders in the Australian market alone the answer is not new lenders, and with a small pricing band it’s not about competitive pricing either, it’s about offering different funding models, he said.

Shields said the government isn't helping improve the situation by saying there's not enough competition in the market or to ban exit fees, because after all exit fees are just deferred establishment fees so instead of charging consumers at the end they'll start charging them upfront.

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