Yesterday we touched on the idea that the housing boom will sizzle as the RBA lets the sector run riot.
Housing lending is up in a big way since last year. But who is cashing in on all this?
Apparently not ANZ.
The Australian Financial Review reported earlier in the month that ANZ’s home lending was only up $500 million since Christmas.
By comparison, CBA was up $29 billion. That’s a hefty difference in anyone’s (loan) book.
And now we have the Westpac quarterly result to chew over.
They say their mortgage book is growing at the same rate as the overall sector but no more.
That’s in contrast to Bendigo and Adelaide Bank Ltd [ASX:BEN] that said its lending growth was 2.8 times the total system.
BEN also cited data that says that the total market share of the Big Four is slipping.
We know the big banks are cutting branches to remove costs and drive their digital channels.
Is this making the market more dependant on broker referrals? It seems likely.
But what can other lenders offer that the Big Four can’t?
Because we also know that they have an unfair funding advantage from the RBA’s Term Funding Facility.
Other lenders can compete on speed of execution and a willingness to take more risk on the borrower.
The big banks are very conservative with their lending after the travails of the royal commission.
I’m sure they are also wary of inviting the regulator to place caps down like we saw in the last big lending boom back in 2015.
That places the non-bank sector right in the crosshairs for me.
They don’t have the same regulatory burdens as the deposit taking banks.
They are also much smaller organisations that can run a nimble operation relative to the lumbering Big Four.
Here’s one thing I can also tell you. They are issuing a lot of mortgage bonds too.
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That suggests they are writing a lot of mortgages. Their funding costs are low, too, as short-term interest rates stay pinned down.
If you’re interested in following the sector on the ASX, you can check out the results of Resimac Group Ltd [ASX:RMC], Liberty Financial Group Ltd [ASX:LFG], Pepper Money Ltd [ASX:PPM], and Latitude Group Holdings Ltd [ASX:LFS].
They’ll be out in the next few weeks.
I’m not suggesting you run out and buy the lot.
Only that it will be very interesting to see if they are currently outmuscling the Big Four banks with the current tailwinds, the odds suggest it’s likely to me.
It does mean you’ll need to step outside the top 50 stocks on the Australian market to what’s called the ‘small-cap’ sector.
These smaller companies offer greater potential for growth, and therefore reward.
They are higher risk because they are usually less established and not always profitable. Some of them don’t even have revenue!
That’s not the case with the non-bank stocks I just mentioned.
But if you’re interested in taking some aggressive positions in, say, a gold explorer, this is the sector where you find these types of companies.
My colleagues Ryan and Murray have put together something like a small-cap ‘starter pack’.
This is their basket of the best small-cap stocks to back now. If that sounds of interest, keep an eye out for their latest presentation!
Best wishes,
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Callum Newman,
Editor, The Daily Reckoning Australia
PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.
