Contents:

Chapter 1. Introduction 8 What is the scope of this report? 8 Who is the target reader? 8 How to use this report 9 Chapter 2. Setting the scene 10 The strong performance of Australias mortgage market has resulted in an increase in the number of non-bank lenders, driving the competitiveness of the market 10 Lending commitments in the mortgage market have grown from A$127.4 bn to A$211.7 bn over the 2001-2005 period 10 Since 1996, more than 28 non-bank players have entered the market 13 Traditional lenders market shares have been threatened and in some cases eroded 15 Chapter 3. Niche markets 18 The targeting of niche market reflects the evolving nature of Australias mortgage market with overseas markets offering further lessons 18 Shared equity mortgages are expected to improve housing affordability for first time buyers 18 SEMs have not yet been introduced in Australia 19 Initially, SEMs were poorly received in the UK, although they still have significant potential in first time buyers market 20 In the future, SEMs must protect borrowers against negative equity and be fully explained to the borrower 22 Graduate mortgages target the needs of young professionals hoping to enter the property market 22 No graduate mortgages exist yet in Australia although interest is beginning to gather 22 Lenders in the UK have realised the potential of the graduate market 23 Australian mortgage providers could take a leaf out of the UK providers book 25 Reverse mortgages are gaining in popularity with retirees looking to transform a proportion of the home equity into cash and improve their standard of living 26 Despite the small size of the reverse mortgage market, there are more than 20 providers of this product in Australia 26 Mortgages that are designed to help divorcees get back on their feet 28 Mortgages that give borrowers maternity leave 30 Mortgage products and services to purchase property overseas 32 Barclays turns facilitator for foreign property investment 32 Chapter 4. Product and pricing strategies 36 Overseas mortgage markets offer innovative product and pricing strategies that have significant potential in Australia 36 The rate of innovation in Australias mortgage market has slowed with just one innovative product entering the market over the last year 36 HSBCs Home Rewards loan is a product that has an innovative pricing structure to encourage customer loyalty 37 Some innovations occurring overseas are focused on customer acquisition 39 Transferring made easy 39 RateCapper Mortgage 40 Cash Back Mortgage 41 Borrowing from superannuation funds for a deposit 43 Lenders are also introducing new strategies for retaining clientele 45 The correct customer retention strategy will vary between lender and by clients 46 Chapter 5. Distribution channels 49 2006 has seen significant innovation in the delivery of mortgage products in Australia 49 Four new entrants to the mortgage market are distributing their products via the Internet only 49 Chat rooms on the Internet provide a place where people can discuss mortgage options 52 Financial planners have become a key delivery option as consumers seek to improve their financial situation 53 Chapter 6. Appendix 55 Supplementary data 55 Definitions 59 Balances outstanding 59 CAGR 59 Cash rate target 59 Gross advances 59 Lending commitments 60 Non-conforming 60 Research methodology 60 Primary research 60 Secondary research 60 Future readings 60 Relevant links 61 Custom research capabilities 61 Asia Pacific SPP writing team 63 How to contact experts in your industry List of Tables Table 1: BankWests reverse mortgage will be more appealing to those retirees under the age of 65 where the LVR is constant at 25%, after this point, they are more likely to be attracted to other providers products such as Bluestones Equitytap 28 Table 2: Housing lending commitments over the 2001-June 2006 period 55 Table 3: Lending and credit aggregates over the 2001-June 2006 period 55 Table 4: A list of non-bank mortgage providers and the year they entered the market 56 Table 5: The proportion of lending by institution in 1996, 2001 and 2006 57 Table 6: Number of divorces, 1983,1993, 1996-2005 57 Table 7: Number of live births, 1995-2005 58 Table 8: Total proposed investment associated with approved proposals, by country of investors and industry sector List of Figures Figure 1: Lending commitments saw the strongest growth in 2003 with a subsequent fall in 2004. Since then the market has improved and is expected to reach a new peak at the end of 2006 12 Figure 2: Credit aggregates grew from A$385.1 bn in January 2001 to A$770.9 bn in June 2006 13 Figure 3: Over the 1996-2000 period, a large number of providers entered the market with those entering over the 2004-2006 period introducing different innovations to gain an edge over incumbents 15 Figure 4: Over the 1996-2006 period, there was an increase in the value of lending by wholesale lenders while banks lost market share 17 Figure 5: The number of divorces was fairly stable over the 1996-2005 period, with 54,967 divorces being granted in 2005 29 Figure 6: The number of live births is volatile although over the 2002-2005 period has remained relatively stable at an average annual rate of 44,445 31 Figure 7: The value of foreign investment from Asian countries in Australian real estate has increased dramatically over the last four years 35 Figure 8: HSBCs Home Rewards loan encourages customer loyalty as borrowers receive a discounted interest rate which drops to 0.75% from the fourth year onwards 38 Figure 9: RBCs RateCapper is an innovative mortgage that limits the interest rate for borrowers 41 Figure 10: Our core consulting capabilities 62 ? Borrowing from superannuation funds for a deposit 43 Lenders are also introducing new strategies for retaining clientele 45 The correct customer retention strategy will vary between lender and by clients 46 Chapter 5. Distribution channels 49 2006 has seen significant innovation in the delivery of mortgage products in Australia 49 Four new entrants to the mortgage market are distributing their products via the Internet only 49 Chat rooms on the Internet provide a place where people can discuss mortgage options 52 Financial planners have become a key delivery option as consumers seek to improve their financial situation 53 Chapter 6. Appendix 55 Supplementary data 55 Definitions 59 Balances outstanding 59 CAGR 59 Cash rate target 59 Gross advances 59 Lending commitments 60 Non-conforming 60 Research methodology 60 Primary research 60 Secondary research 60 Future readings 60 Relevant links 61 Ourcustom research capabilities 61 Asia Pacific SPP writing team 63 How to contact experts in your industry List of Tables Table 1: BankWests reverse mortgage will be more appealing to those retirees under the age of 65 where the LVR is constant at 25%, after this point, they are more likely to be attracted to other providers products such as Bluestones Equitytap 28 Table 2: Housing lending commitments over the 2001-June 2006 period 55 Table 3: Lending and credit aggregates over the 2001-June 2006 period 55 Table 4: A list of non-bank mortgage providers and the year they entered the market 56 Table 5: The proportion of lending by institution in 1996, 2001 and 2006 57 Table 6: Number of divorces, 1983,1993, 1996-2005 57 Table 7: Number of live births, 1995-2005 58 Table 8: Total proposed investment associated with approved proposals, by country of investors and industry sector List of Figures Figure 1: Lending commitments saw the strongest growth in 2003 with a subsequent fall in 2004. Since then the market has improved and is expected to reach a new peak at the end of 2006 12 Figure 2: Credit aggregates grew from A$385.1 bn in January 2001 to A$770.9 bn in June 2006 13 Figure 3: Over the 1996-2000 period, a large number of providers entered the market with those entering over the 2004-2006 period introducing different innovations to gain an edge over incumbents 15 Figure 4: Over the 1996-2006 period, there was an increase in the value of lending by wholesale lenders while banks lost market share 17 Figure 5: The number of divorces was fairly stable over the 1996-2005 period, with 54,967 divorces being granted in 2005 29 Figure 6: The number of live births is volatile although over the 2002-2005 period has remained relatively stable at an average annual rate of 44,445 31 Figure 7: The value of foreign investment from Asian countries in Australian real estate has increased dramatically over the last four years 35 Figure 8: HSBCs Home Rewards loan encourages customer loyalty as borrowers receive a discounted interest rate which drops to 0.75% from the fourth year onwards 38 Figure 9: RBCs RateCapper is an innovative mortgage that limits the interest rate for borrowers 41 Figure 10: Our core consulting capabilities 62