Mortgage competition at risk: Consumers may lose

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The Mortgage and Finance Association of Australia (MFAA) will today step up its push for the Government to secure competition in the banking and non-banking sectors by establishing a Government backed source of funding for lenders.

In a verbal submission to the House of Representatives Standing Committee on Economics, the MFAA will today argue that securitised funding sources for lenders are imperative to ensuring a competitive market.

“Competition in the market puts downward pressure on rates and helps to ensure that consumers get better variety and choice of home loans,” said Phil Naylor, CEO of the MFAA.

“This inquiry has acknowledged that there is a current need in the lending market to expose the number of home mortgage products available and offer a wider choice to the consumer. The only way to offer a wider choice is by having a wider lending pool.

“We need securitised sources of funding to keep competition alive. The lack of available credit at the moment has the ability to severely impact non-bank lenders in particular, because they don’t take deposits from their customers like the banks do,” said Mr Naylor.

“If the credit crunch continues over a long period, we can expect non-bank lenders to feel the pinch. The loss of players in the market will negatively impact on competition and not be in the best interests of borrowers,” said Mr Naylor.

Fewer lenders mean less competition, which means less downward pressure on rates. The end result will be higher interest rates, and this will burn consumers’ back pockets even more.

“We are calling on the Government to give serious consideration to establishing an Australian version of Canadian Mortgage Bonds program,” said Mr Naylor.

The Canadian scheme (National Housing Act Mortgage-backed Securities) was introduced in 1985 in response to rising mortgage costs. The program aims to create a more competitive market that would allow smaller financial institutions to provide housing finance at comparable rates to larger institutions. It provides investors with high quality Mortgage-Backed-Securities that are secured by a government guarantee.

“The Canadian model improves competition and is an active move by Government to lower mortgage rates to the consumer. We think this is needed in Australia to ensure competition flourishes,” said Mr Naylor.

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