COMPETITION in the home loan market has collapsed, with the big four banks now writing almost every new mortgage as small lenders are squeezed out of contention.
New figures on home lending yesterday reignited fears that the big banks will emerge from the global economic downturn with too much power.
The figures place renewed pressure on the Rudd Government to unwind funding guarantees that have given the big four banks an advantage over their smaller rivals and non-bank lenders...
Pressure is also growing on Treasurer Wayne Swan to expand an $8 billion support package for the mortgage-backed securities market, a key source of funding for small lenders and non-banks.
Further mortgage growth is expected as the Reserve Bank yesterday decided to keep official interest rates at a low 3 per cent. But with the central bank gradually upgrading its outlook for the economy and inflation, economists believe that interest rate increases may begin before the end of the year.
Monthly figures released by the Australian Prudential Regulation Authority show the big four lenders captured nearly 100 per cent of the $7 billion in new mortgages written in July. Before last year's freeze in global funding markets, those banks' share of new mortgages was running at about 60 per cent.
Regulators are coming under greater pressure to oppose future banking mergers, with lenders such as St George Bank and BankWest being acquired by a bigger rival in the past year.
Smaller non-bank lenders, including Wizard and RAMS home loans, have also been snapped up by big banks. Recently, National Australia Bank acquired Challenger Financial's mortgage business.
With small banks forced to pay twice the rate of their bigger rivals to access the Government's AAA credit rating to tap wholesale funding markets, they struggle to compete on mortgage pricing.
Bank of Queensland managing director David Liddy has been among the most outspoken of the smaller lenders. He says the wholesale funding guarantee only serves to disadvantage competitors to the big four banks. Commonwealth Bank and Westpac dominate the nation's mortgage market, respectively writing 40 per cent and 35 per cent of new loans, the APRA figures show. St George Bank, now owned by Westpac, is winning about 13 per cent of new loans, followed by NAB and ANZ.
The APRA figures show the mortgage market is holding up better than expected, helped by the stimulus provided by the first home owners' grant.
After growing by 0.8 per cent in July, the amount of housing credit is increasing at an annualised rate of 9.6 per cent.
The Australian banking system was already highly concentrated before the global financial crisis, thanks to the 1990s recession, which wiped out the second tier.
The four biggest banks are expected to report about $15.4 billion in profits this year, cementing their place among the world's most successful banks.