The Mortgage and Finance Association of Australia has called on the Federal Government to inject much needed funding into the non-bank sector.
MFAA chief executive officer Phil Naylor said the government needed to introduce a permanent solution to the non-bank sector's lack of funding access by adopting a system similar to Canada, through which the Government has invested $300 billion in National Housing Act mortgage-backed securities and bond programs over the past five years.
Mr Naylor made the comments as part of the MFAA’s formal submission to the Senate Economics References Committee Inquiry into the Post-GFC Banking Sector.
"It is clear there will be no long-term meaningful changes to bank competition unless there is a strong and viable non-bank lending sector. The rise in wholesale funding costs and the closure of securitisation markets continues to compromise the business models of non-banks, regional banks and mortgage brokers," Mr Naylor said.
“We need to adopt initiatives similar to those taken by the Canadian Government to successfully stimulate competition in the banking sector to the benefit of borrowers and the wider economy.
“Since the GFC, the Australian banking and mortgage sector has become less competitive and Australian consumers are paying the price, with banks now providing more than 90 per cent of the mortgages.
“Canada is similar in size and population to Australia but its citizens enjoy the economic advantages of a more competitive mortgage market and lower mortgage rates because of healthy competition”, added Mr Naylor.
Competition in the Australian banking and home loan market has deteriorated since the GFC.
In July 2007 before the GFC, the big found banks held 78.8 per cent of the Australian mortgage market. Credit unions held 4.7 per cent, building societies 2.8 per cent and non-bank lenders 13.7 percent.
In March 2012, the big four now hold 92.4 per cent, credit unions 4.6 per cent, building societies 1.6 per cent and non-bank lenders just 1.1 per cent.
“This uncompetitive market manifests itself in poor service levels and lack of availability of products. A market dominated by four large players who hold over 80 per cent of the market share is not normal. Few people would agree the current position is good public policy and in the interests of the wider community,” Mr Naylor said.
"Non-bank lenders can't be allowed to wither on the vine, leaving Australians in the hands of the big four banks for their home loans. The Canadian Mortgage Bond system assists competition by ensuring there is a quality flow of securitised funds available to non-bank and bank lenders. This ensures there is a wider range of lenders in the mortgage market offering mortgage loans.
“More lenders mean more competition and downward pressure on interest rates. The impact of lower interest rates on home loans and the resultant flow-on wealth effects to the broader community and national economy cannot be ignored.
“Any system which enables more lenders to be viable in the market will produce greater interest rate competition. The Canadian solution has ensured competition through sufficient low-cost funding, resulting in profits for the government and competitive returns for investors.”