Tough competition in the home loan market has hit Homeloans Ltd's bottom line and contributed to a reduction in the value of its loan book.The lender made a net profit of A$6.2 million for the year to June - down 19.8 per cent on the previous corresponding period. It is the second consecutive year the company has reported a decline in earnings.Net interest income fell 13.2 per cent to $8.4 million. The company said competition had a negative impact on margins.Loan settlements were up 13.2 per cent for the year but the value of the company's loan book fell from $7.7 billion at the end of the 2012/13 financial year to $7.6 billion at the end of June.Several factors contributed to this decline. Lenders are competing with each to win refinancing business, while at the same time borrowers are taking advantage of low interest rates to pay off their loans quickly.Homeloans has a portfolio of loans it bought in 2011 from failed aggregator Refund, which is running off. Homeloans' chief executive Scott McWilliam said that without the Refund run-off Homeloans' loan book would have grown over the year to June.McWilliam said settlement volumes picked up the June quarter. The company is confident stronger conditions will continue into the first half of the current financial year.He said the company was positioning itself for growth by expanding its broker distribution. "We have invested in sales by hiring more business development managers," he said.He said the company's funding structure put it in a good position to compete. It has a securitisation program and works with a range of wholesale funders, including Advantedge, ING Direct, Macquarie and Adelaide Bank. Recently it has entered into funding arrangements with Pepper and Resimac to provide non-prime loans.