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.
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:
Senior Communications Manager, KPMG
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