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Low-documentation and Non-conforming Mortgage Markets in
Australia 2006

Description:    This report firstly analyzes the growth of the entire mortgage market and then looks at both the
                low-doc and non-conforming markets. It examines the growth of each market, the size of each
                market in terms of the potential population and also loans advanced. It also discusses any
                competitive developments and concludes by forecasting each market to 2011.

                Scope of this title:
                - Focuses specifically on the low-doc and non-conforming mortgage lending in Australia, sizing
                lending commitments in the market from 2002-2006.
                - This report analyses competitor dynamics in the market including the market shares of the non-
                conforming specialist lenders in 2005 and 2006.
                - Forecasts the size of each the low-doc and non-conforming mortgage market between 2007 and
                20011 and analyses the key themes over this period.

                Highlights of this title:
                - The low-doc mortgage market grew significantly over the last few years. Of most importance is
                the fact that prime lenders now offer low-doc products. Prior to this, prime lenders steered away
                from this market because of its perceived risks. However, slower growth in the mortgage market
                forced these lenders to target other customer groups.
                - Another issue of concern in both the low-doc and non-conforming mortgage markets is the short
                loan-life. This report discusses four methods of improving customer retention rates.
                - Due to extensive primary and secondary research, we were able to estimate market shares of the
                non-conforming specialist lenders in both 2005 and 2006. This is presented from two perspectives:
                in terms of overall non-conforming lending commitments; and in terms of the specialist lenders
                loan writing only.

                Reasons to order your copy:
                - Quantify both the low-doc and non-conforming populations and lending commitments in each of
                these markets.
                - Includes market shares of the non-conforming specialist lenders in both 2005 and 2006 and the
                proportion of their lending commitments in the market.
                - In-depth analysis of competitors and market issues in both the low-doc and non-conforming
                mortgage markets.



Contents:

                Chapter 1.

                 Introduction 10
                 Who is the target reader? 10
                 Scope 11
                 How to use this report 11

                Chapter 2.

                 Australia’s mortgage market 12
                 Despite a decline in 2004, the Australian mortgage market continued to exhibit strong growth over
                the 2001-2005 period 12
                 Housing lending commitments grew from A$127.4 billion in 2001 to A$211.7 billion in 2005 12
                 Housing credit aggregates grew from A$385.1 billion in 2001 to A$723.9 billion in 2005 14
                 Greater refinancing increased churn in the market, resulting in further business for lenders 15

                Chapter 3.
 The low-documentation mortgage market 19
 The potential of the low-doc mortgage market 19
 The number of self-employed individuals in Australia exceeded 1.3 million at the end of August
2006 19
 The number of contract or casually employed individuals rose to 26% of all employees 24
 Sizing the low-doc mortgage market 25
 Reasons behind the strong growth of the low-doc market 28
 Competitor dynamics 29
 Forecasting the size of the low-doc market 32
 Lending commitments for the low-doc market will rise to to A$58.4 billion by the end of 2011 33
 Current issues in the low-doc market 35

Chapter 4.

 Non-conforming mortgage market 38
 The potential size of the non-conforming mortgage market continues to grow 38
 The number of credit impaired people increased 38
 The number of divorcees remains high 44
 Australia has a high number of new or temporary residents who fall into the non-conforming target
market 45
 Quantifying the non-conforming population 46
 Sizing the potential non-conforming mortgage market 48
 Market shares 50
 Competition in the non-conforming market intensified 55
 Bluestone 55
 Liberty Financial 56
 Pepper Australia Pty Ltd 59
 GE Money 62
 Challenger (Interstar) 64
 Mobius 65
 Market issues 67
 Forecasting the size of the non-conforming mortgage market 74
 Lending commitments for the non-conforming market will rise to to A$22.1 billion by the end of
2011 75

Chapter 5.

Apendix 79
Supplementary data 79
Definitions 85
Future readings 86
Relevant links 87
Our custom research capabilities 87
SPP writing team 89
How to contact experts in your industry

List of Tables
Table 1: Macroeconomic factors used to forecast lending commitments in the non-conforming
mortgage market, 2007-2011 33
Table 2: Macroeconomic factors used to forecast lending commitments in the non-conforming
mortgage market 75
Table 3: Housing lending commitments, 2001- September 2006 79
Table 4: Housing credit aggregates, 2001- October 2006 79
Table 5: Refinancing in the mortgage market, 2001-2005 79
Table 6: Housing credit aggregates of market shares of banks, December 2004-July 2006 80
Table 7: Number of self-employed individuals, 2001-Aug 2006 80
Table 8: Australian workforce breakdown, 2001-August 2006 81
Table 9: Size of the low-doc mortgage market, 2002-2006 81
Table 10: Number of IV and XI bankruptcies, 1995/96 – 2005/06 81
Table 11: Number of debt agreements, 1996/97 – 2006/97 82
Table 12: Number of divorces, 2000-2004 82
Table 13: Temporary residents, December 2004-December 2005 82
Table 14: Individuals in the non-conforming population, 2001-2005 82
             Table 15: Number of individuals with a bad credit history and also as a proportion of the non-
            conforming population, 2001-2005 83
             Table 16: Non-conforming specialist lenders market shares, 2005-2006 83
             Table 17: Market shares of the loans written by non-conforming specialist lenders only 84
             Table 18: Forecasts of non-conforming lending commitments, 2007-2011

             List of Figures
             Figure 1: Over the 2001-2005 period, housing lending commitments grew by 13.5% compounded
            annually 13
             Figure 2: The proportion of investment housing lending declined since house price growth rates
            have fallen
             that is, since 2003 14
             Figure 3: Housing credit aggregates increased from A$385.1 billion to A$723.9 billion in 2005. By
            October 2006, they stood at A$805.4 billion 15
             Figure 4: Refinancing as a proportion of total lending value increased over time, from 19.9% in
            January 2001 to 28.7% at October 2006 16
             Figure 5: Refinancing increased over the 2001-2005 period, particularly when lenders began
            targeting their competitors customers 17
             Figure 6: Over the December 2004 – July 2006 period, CBA saw the largest drop in market share
            in the mortgage market while ANZ saw the greatest increase 18
             Figure 7: Over the 2001-2005 period, the proportion of self-employed workers declined, however
            over the first eight months of 2006 this proportion increased 21
             Figure 8: The overall number of self-employed individuals increased over the December 2005 –
            August 2006 period, despite the proportion the number of contributing workers falling considerably
            23
             Figure 9: We estimate lending commitments in the low-doc mortgage market will reach A$37.9
            billion in 2006 28
             Figure 10: Strong growth is expected to continue in the low-doc market with lending commitments
            reaching A$58.4 billion in 2011 34
             Figure 11: The number of IV and XI bankruptcies has gradually started increasing in recent years,
            with the July 2006- June 2007 year expected to be higher again 40
             Figure 12: The number of bankruptcies per quarter was relatively volatile over the last 10 years 41
             Figure 13: The number of debt agreements signed has increased significantly since their
            introduction in 1996 42
             Figure 14: The quarterly data indicates a general increase in the number of debt agreements
            although in the last few years there was some volatility 43
             Figure 15: The number of divorces increased by 10.9% over the 2000-2001 period, although it has
            since declined 44
             Figure 16: The number of temporary residents increased by 9.1% over the twelve months to
            December 2005 45
             Figure 17: We estimate that the potential non-conforming mortgage population was 2.5 million at
            the end of 2005 with an average annual growth rate of 4.6% over the 2001-2005 period 47
             Figure 18: There were almost 870,000 individuals with a bad credit history in Australia at the end
            of 2005, accounting for approximately 35.6% of the non-conforming population 48
             Figure 19: The non-conforming mortgage market continues to grow in 2005 and 2006 50
             Figure 20: In both 2005 and 2006, Liberty had the largest market share when compared to other
            non-conforming lenders 52
             Figure 21: Changes in the market shares of the non-conforming specialists are more obvious when
            in perspective of the loans that these players have written rather than the whole market 54
             Figure 22: Catchy phrases and a unique marketing concept are likely to make Liberty’s latest
            venture, successful 58
             Figure 23: HSBC’s Home Rewards loan encourages customer loyalty as borrowers receive a
            discounted interest rate which drops to 0.75% from the fourth year onwards 72
             Figure 24: Non-conforming lending commitments are estimated to increase to A$22.1 billion by the
            end of 2011 76
             Figure 25: Our core consulting capabilities 88




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