Competition for mortgage lending has received a major boost with the announcement that the federal government has committed a further $8 billion to the residential mortgage backed securities (RMBS) market.
Treasurer Wayne Swan announced yesterday that the government would buy up to $8 billion in mortgage bonds from small home loan lenders to ensure their survival against the big four.
The government has previously come under scrutiny for its wholesale funding guarantee that has allowed the big banks to snag a larger margin of the home lending market.
Westpac, the Commonwealth Bank of Australia (CBA), the National Bank of Australia (NAB) and the Australia and New Zealand Banking Group (ANZ) have increased their share in the home loan market from 60 per cent before the global financial crisis to more than 81 per cent today.
At the same time, non-bank lenders have seen their market share collapse from 12 per cent to 2.5 per cent, according to figures from the Australian Prudential Regulation Authority (APRA).
Mr Swan said the government is committed to ensuring the banking system works for Australian families and businesses, not against them.
"This investment will provide a major boost to smaller lenders and promote competition in the mortgage market, helping to put downward pressure on borrowing rates over time," he said in a statement.
"Securitisation is an important source of funding for smaller mortgage lenders, and enables them to compete with larger lenders."