Westpac and the Commonwealth Bank lead the four majors in the latest credit growth numbers, accounting for 80 per cent of loan growth over the six months to October.
According to an UBS report, the market share of non-bank lenders has fallen significantly in the past year.
System credit grew $10 billion or 0.5 per cent over the six months to October, as major loan growth of $53 billion was offset by a lending contraction of $43 billion by foreign banks, regionals and non bank players.
Mortgage Choice chief executive officer Michael Russell said the dominance of the major banks in the home loan market was bad news for consumers and brokers.
"I'm terribly concerned that it has regressed, and I don't think it's anybody's intended actions that have caused that. I think it really is an unintended consequence of the global financial crisis, but I think we're operating in a market place now where the four major banks certainly have a fairly significant stranglehold on the market, and I don't think that's healthy for anybody, short or long-term," Mr Russell told the ABC.
"In 1985, 1986 we had this deregulation occur with all these wonderful foreign banks taking up banking licenses and from that point onwards until just recently we've seen some terrific innovation and advances, in mortgage delivery in particular. And I look now and it's sort of got the same trademarks as what was occurring back 20 years ago."
According to Mr Russell, there is an urgent need to support not only the remaining second-tier banks, but also building societies and credit unions.
"From Mortgage Choice's perspective, we still have some healthy competition, but I think there's a number of those second tier lenders that'd probably be on life support and unless we can provide them some liquidity within the next six to 12 months, you might have a situation where you've got the four banks owning a couple of the other banks and then you've got three or four second tier regionals competing with them, which probably isn't enough," he said.
But while CBA and Westpac made up the lion’s share of the market at current, Westpac’s decision to lift its variable mortgage rate above the RBA on Tuesday puts it at risk of losing market share to other banks.
At the time of print, Westpac remained the only bank so far to have raised rates this week following the Reserve Bank’s decision to lift rates by 25 basis points.