The mortgages industry issues two major types of loans: fixed rate loans and variable rate loans. The variable rate loan market is far more dynamic than the fixed rate market, with several different types available in Australia, each with unique features that cater for the varying needs of borrowers. The two other loan types are lines of credit and construction loans, and a loan can be split between fixed and variable.
The mortgages industry is expected to record solid growth over the next five years as the strengthening economy and strong underlying demand for housing underpin growth in home lending. Banks should also benefit from rising customer deposits and the introduction of covered bonds, which will reduce reliance on overseas borrowing.
However, profitability is expected to come under pressure from rising competition in the mortgage sector as banks and brokers vie for market share, while increased capital requirements under new Basel III banking reforms will increase funding costs. On top of this, the Federal Government seems intent in encouraging competition in the industry to the benefit of those wishing to achieve the Australian dream of home ownership.
The industry’s major threat remains a collapse in the housing market. This is looking unlikely, however, as the Federal Government has taken steps to ensure stable and consistent demand. IBISWorld estimates industry revenue will increase at an annualised 3.5% over the five years through 2017-18 to total $109 billion.
To purchase IBISWorld’s full report on Australia’s mortgage sector, click here.
