Jessica Darnbrough
The Senate Economics References Committee believes there could be scope for Australia to introduce a Canadian-style mortgage model and is calling for an “investigation” into the international mortgage program.
Yesterday, the committee recommended that “further research be done into how the Canadian model could be applied in Australia so that it could be implemented quickly in case of future deterioration in the securitisation market”.
In Canada, the government is responsible for injecting funds into the National Housing Act mortgage-backed securities and bond program.
Over the past five years, the government has introduced more than $300 billion into the program, providing the market’s non-bank lenders with strong mortgage funding.
MFAA chief executive Phil Naylor welcomed the findings of the committee and said it was about time the Australian government did something to improve competition in the mortgage lending sector.
“The Canadian government’s model has successfully stimulated competition in the banking sector to the benefit of borrowers and the wider economy, and we will continue to push for further government stimulus and funding to be provided in Australia to support this vital sector,” he said.
“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.”
In March 2012, Australian banks held a 92.4 per cent market share, 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. 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,” Mr Naylor said.
“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.”
But while Mr Naylor believes a Canadian style mortgage program would work well here in Australia, not everyone agrees.
FBAA’s president Peter White said if the government were to introduce a Canadian style program, it wouldn’t solve the lack of competition in the mortgage market.
“All the program would do is transfer risk from the private sector to the public sector and tax payers. After all, where does the government source its funds from...tax payers,” he told The Adviser.
Mr White went onto say that while the Senate Committee admitted it would look at the Canadian mortgage program again, it is unlikely that the program would ever be implemented in Australia.
“In the Senate’s report, they said they would look at the program again before “completely dismissing it”.”
“The fact that they are close to completely dismissing it suggests to me that it will never come into play here,” he said.