Federal Treasurer Wayne Swan has given the government’s bond manager the nod to invest $8 billion in the Australian residential mortgage-backed securities market (RMBS).

Mr Swan on Monday said he had directed the Australian Office of Financial Management (AOFM) to implement this investment, announced last month. It will help put downward pressure on borrowing costs.

It will also allow for the remaining $246 million from a previous $8 billion initiative to be invested.

“This investment is an important part of the government’s commitment to strong and effective competition in Australia’s mortgage market,” Mr Swan said in a statement.

“By supporting smaller lenders and promoting competition in the Australian mortgage market, this investment is helping to put downward pressure on borrowing costs over time.”

The investment also specifies an additional objective of supporting lending to small businesses from funds provided under the program.

He said investments to date in RMBS had allowed them to raise almost $11.4 billion in funding. These investments had also supported five non-major Australian banks, four building societies and credit unions, and four non-ADI lenders.

Non-ADI lenders are non-bank lenders who can issue mortgages but do not conduct regular consumer banking.

“These investments in RMBS have enabled smaller lenders to lend at competitive interest rates and maintain a higher level of lending and market share than would otherwise have been possible,” he said.

“They have also helped to maintain the operation of the RMBS market and preserve its infrastructure.”

Securities purchased under the program will be high quality investments, rated AAA or equivalent by one of the major credit rating agencies and subject to other strict eligibility criteria to be specified by the Treasury.

AAP