Posted: 18 Feb. 2020 5 min. read

Looking ahead: Entering a new decade for mortgage lending

Weekly economic briefing

This week, we focus on some of the highlights from Deloitte’s latest (and 15th) Australian Mortgage Report – Looking Ahead 2020 which was launched earlier this week.

The year 2019 could be best described as one of taking stock for all participants in the country’s mortgage lending sector – from consumers to distributors (brokers) and lenders. It was the first year following the Hayne Royal Commission report, and a year where the market had to consider the significant issues identified and work through appropriate responses and changes to ensure cases of poor outcomes for consumers were not repeated.

For many lenders, this led to material changes in the way they assessed customer suitability and loan servicing criteria. This impacted both the process time and information requirements placed on brokers and the customer. Many lenders also made conscious decisions to reduce exposure to certain segments of the market in line with revised risk appetite.

Economic growth also softened through 2019 which, along with continued low inflation and wage growth, resulted in Reserve Bank official interest rate reductions.

This may help to explain why in 2019 we saw only a modest 3.7% growth in overall residential mortgage lending and a 7.5% fall in mortgage settlement volumes. However, this overall fall in 2019 was largely a story of two halves.


Chart 1: Residential mortgage lending 2000-2019

Residential mortgage lending 2000-2019

In the first six months, settlement volumes were 20% lower than for the same period in 2018, while in the second half, settlement volumes returned to levels that were consistent with, and even slightly higher, than in 2018.

Stronger demand in the second half could also be seen through stronger house price growth. In the last months of 2019, the weekly increase in the price of the average home in Sydney was $3,700, while Melbourne’s prices raced upwards at a pace of $2,900 a week. That is not sustainable, but there is sufficient momentum to see prices pass their 2017 peak sometime in these opening months of 2020.

So where to in 2020?

A survey of representatives from the nation’s biggest lenders and broker groups canvassed views on the likely outcomes across a variety of aspects around mortgage lending in 2020.

In line with only modest business confidence at present, this group sees some tempering of the sharp rebound in mortgage lending seen at the end of 2019. Overall, the group still predicts only a relatively modest recovery in settlements, or new lending, with growth of 1–5%. At these levels, it’s likely that, once combined with refinancing and repayments, overall outstanding lending system growth may continue at around 3%. That would be in line with the average of 2019, though perhaps without the volatility of last year.

More about the authors

David Rumbens

David Rumbens

Partner, Deloitte Access Economics

David is a macro economist with extensive experience in applied economic and quantitative analysis of the Australian economy, along with considerable experience in labor market analysis.  David is a regular commentator on macroeconomic trends, and prepares a weekly economic briefing newsletter.

James Hickey

James Hickey

Partner, Consulting

James is a partner of Consulting and part of the Actuaries and Consultants group. James has been involved in a range of financial services work within Australia, New Zealand, South Africa and UK. His areas of expertise include life insurance, wealth management and banking. James' banking experience has developed over the past five years as he has extended the role of actuaries in banking and mortgages. He specialises in mortgage portfolio modelling and third party broker distribution.

Heather Baister

Heather Baister

Partner, Audit & Assurance

A member of Deloitte for 18 years in the UK, Australia and the USA, Heather leads Deloitte’s Securitisation Advisory offerings to both audit and non-audit clients. Heather has extensive experience of working with mortgage originating, servicing, broking, and securitisation clients, on both audits and advisory projects and is focused in particular on end-to-end retail mortgage controls and process. An audit engagement partner and lead client service partner, as well as quality reviewer on our largest banking audits, Heather is a regular commentator on the industry and the current issues impacting Australian participants.