This trend has been driven mainly by the tightening of regulations and new rules that have made it difficult for non-bank lenders to compete. Banks now hold up to 85% of the total mortgage market share, compared to only 60% before the financial crisis.
To understand why banks are gaining so much control, it’s important to look at how they have adapted to the new regulations. Banks have become more cautious about lending money, making their criteria for approving mortgages more stringent. They are also increasingly focusing on prime borrowers, while non-bank lenders tend to specialize in higher risk, subprime loans. Banks are also better at managing their portfolios in order to reduce their losses if borrowers default on their loans.
The increasing control of banks over the mortgage market also means that borrowers are having a harder time getting access to competitive borrowing options. With banks holding such a huge share of the market, it can be difficult for borrowers to find good deals. Borrowers also face higher interest rates when borrowing from banks, compared to non-bank lenders.
The increasing control of banks over the mortgage market has implications for the entire banking sector. More regulation of banks means that they will have access to more capital, which allows them to lend more money and at lower interest rates. This, in turn, can lead to increased economic activity and growth. However, this could also lead to a decrease in competition, as larger banks may be able to dominate smaller lenders.
Overall, the trend of banks taking a larger share of the mortgage market has been driven by broader regulatory changes. Banks have become more conservative in their lending practices, while non-bank lenders have faced significant obstacles. As a result, borrowers are facing fewer lending options and potentially higher interest rates when borrowing from banks. Ultimately, the increasing control of banks over the mortgage market could mean both greater economic activity and less competition in the banking sector.
This article was contributed on Nov 04, 2023
