Australian home ownership dream alive and well for mass affluents

Australian home ownership dream alive and well

KPMG Australia’s latest mortgage market survey, The Australian Home Loan Market – Winning the fight for customers (May 2017), has found that for the majority of ‘mass affluents’ taking out a home loan is in their sights in the next 2 years.

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  • 63 percent of professionals currently without a home loan plan to apply and buy within the next 2 years according to a new survey.
  • Residential property still a sought-after investment, despite talk of housing bubbles and significantly high debt to income ratios.
  • 45 percent of respondents still want to apply for a home loan at a branch – but prefer digital channels to conduct research on home loans and for servicing once their home loan has been drawn down.
  • Overall, 44 percent of mass affluents prefer to use a broker when applying for a home loan. However we note that as age increases, respondents showed a greater preference to obtain a home loan through their existing Financial Institution.
KPMG Australia’s latest mortgage market survey, The Australian Home Loan Market – Winning the fight for customers (May 2017), has found that for the majority of ‘mass affluents’ taking out a home loan is in their sights in the next 2 years.

More than 600 KPMG professionals earning between $70,000 and $250,000 per annum – falling into the ‘mass affluent’ definition - were surveyed about their views of the mortgage market and their future intentions. Their ages ranged from 21 – 65 years, and they were based across the country.

A key finding of the survey is that residential property is still a sought-after investment – and one a significant number of mass affluent Australians plan to make in the next 2 years. This is despite talk of housing bubbles and significantly high debt to income ratios.

Geoff Rush, KPMG Financial Services Partner said that it was notable that 63 percent of respondents who currently do not have a home loan stated they intend to apply for one within the next 2 years.

“We believe this reflects a generally held belief that residential asset prices will continue to rise in the long run despite current high prices and issues around affordability,” said Mr Rush. “We also noted the difference in stated intentions amongst workforce segments, with a significant 73 percent of ‘established workforce’ respondents who do not currently have a home loan planning to apply within the next 2 years.”

The KPMG Australian Home Loan Survey shows that, since 2006 the median house price in Australian capital cities (where 67 percent of the population live) has more than doubled from $286,000 to almost $700,000. A similar story is true for units and apartments where median prices across capital cities has grown by 40 percent in the last 10 years.

Over the same period, Australian wages have grown at a much more modest compound annual rate of 3 percent. This differential in growth rates between residential assets prices and incomes has resulted in an unprecedented level of indebtedness, with average household debt to net disposable income currently at a ratio of 1.8 to 1. These prevailing market conditions have benefited many investors in the Australian residential property market. At the same time, they have also made it increasingly difficult for the next generation of prospective home owners to enter the market.

Mr Rush said that in spite of this climate, the great Australian dream of home ownership persists. The prevailing market conditions are also giving rise to new business models such as fractional ownership for investors who want exposure to the Australian housing market but do not have the saving to buy their own home.

“Post the GFC, aggregate home loan volumes have continued to grow, albeit at a much slower rate than in the 5-year period leading up to the GFC,” he said. “Competition amongst Australian banks in home lending is particularly fierce at the moment. To maintain market share, banks are heavily discounting their front books, especially through broker channel. Interestingly, they are typically not matching these discounts through their own proprietary channels. The impact this is having on profitability is material with net margins as low as 25 bps on the front book of some of the smaller regional banks.”

Mr Rush noted that Australian financial institutions were increasingly working towards initiatives that would deliver a superior customer experience – ideally, at a lower cost to serve.

“These improvement initiatives include zero based design of the end-to-end customer home loan journey, improved usage of customer data to develop more personalised offerings, enhanced functionality of mobile applications as well as new digital platforms for e-conveyancing and settlements.”

Mr Rush said the sums of money being spent on improving the home loan experience of customers were substantial.

“Estimates from the KPMG Australian Home Loan Market survey suggest that Australian financial institutions will spend over $250 million in each of the next 2 years,” he said. “Australian Financial Institutions are seeking to understand what Australians in the market for a home loan really want.”

An interesting finding of the KPMG Home Loan Survey is the increasingly important role being played by digital and broker channels in selecting a home loan provider.

“The propensity of mass affluent customers to take out home loans with institutions other than their main bank, and the impact perceptions around integrity and simplicity have on decision making underscored the need for Australian banks to speed up their transformation programs to win the intensifying battle for home loan customers,” said Mr Rush

Change is afoot across a number of levels across the financial services sector. While the KPMG Survey showed 45 percent of respondents prefer the traditional channel of using branches to apply for a home loan, branches are one of the least preferred options for researching or servicing a home loan.

Key challenges

Mr Rush said the findings from the KPMG survey of mass affluent Australians pose a number of key challenges that Australian financial institutions must address in order to win the fight for home loan customers. These included:

  1. Recognising difference – important differences exist for mass affluent customers at the sub-segment level and these differences need to be factored into efforts to improve the end to end customer experience. To successfully differentiate themselves and bridge the current gap between expected and actual home loan experiences, Australian financial institutions need to take a big data, analytically driven approach to redesigning their home loan customer journeys and use the insights from this analysis as an input into human centred, zero-based design efforts.
  2. Understanding channel diversity – use of brokers for acquiring home loan customers is on the ascent and is clearly a popular choice amongst our mass affluent survey respondents. But what is the long-term equilibrium for the broker channel? How will this affect home-loan pricing and retention strategies? What implications does it pose for the changing size and capabilities required in the branch networks of the major banks and credit unions? Australian financial institutions need to develop clearly defined strategies for optimising the value of broker partnerships and balance these plans with its proprietary channel strategies.
  3. Striving for clarity – respondents clearly stated that integrity and simplicity are extremely important factors in the decision making process around which institution to deal with when it comes to the most important investment they are likely to make in their lifetime. However, the survey also shows that most financial institutions are failing to consistently deliver against these expectations. 
  4. Considering cultural improvements – Cultural change lies at the heart of transforming customers’ home loan experiences and earning their trust. Leading institutions are experimenting with cutting edge technologies that draw on multi-channel, psychographic data to optimally match customers with the home loan specialist best suited to their personality and needs.

Further information

Ian Welch
Senior Communications Manager, KPMG
T: 02 9335 7765 / 0400 818 891
E: iwelch@kpmg.com.au

The Australian Home Loan Market – Survey analysis

We surveyed more than 600 'mass affluents' about their views of the mortgage market and their future intentions.

 
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