Home News Risk of interest rate hikes due to reduce mortgage competition

Risk of interest rate hikes due to reduce mortgage competition

Font size :
Australian consumers are at risk of further interest rate rises as a result of reduced competition in the mortgage market, if steps are not made to secure funding for home-loan providers, according to the Mortgage and Finance Association of Australia (MFAA).
 
The MFAA has called for action to ensure competition in the home lending market in its submission to the Senate Select Committee into Housing Affordability.
 
“The issue of housing affordability needs to be tackled on several fronts. While securing a competitive home-loan market is not a silver bullet, it will play an important role in making home financing more affordable for consumers,” said Phil Naylor, CEO of the MFAA.
 
The current liquidity crunch, while impacting on all providers of credit, has had a greater impact on non bank lenders, which do not have access to deposits and rely on the global markets and securitisation for their loan funding.
 
“If non bank lenders are squeezed out of the market because of lack of access to funds, we will likely see a ‘back to the future’ scenario with banks dominating housing lending and interest rate margins creeping back to pre-1990 levels,” Naylor said.
 
“Consumers need competition in the home-loan industry to ensure there are a lot of product options available to them and to put downward pressure on interest rates. Higher interest rates will mean less access to housing finance and home ownership.”
 
In order to sustain competition in the Australian housing finance market, Naylor said that Australia needs a mechanism to provide access to securitised funds. This structure already operates in Canada and USA, through organisations such as the CMHC (owned by the Canadian Government), Fannie Mae (privatised) and Freddie Mac (sponsored by the US Government.
 
“History tells us that increased competition in the home loan market leads to a better deal for consumers. Deregulation in 1990 lead to a significant reduction in the margin between mortgage lending rates and the official cash rate,” Naylor said.
 
After deregulation, non-bank mortgage providers increased their market share by offering lower mortgage rates than the banks. The banks reacted by reducing their lending rates to meet the competition from non-bank providers.  The result was a reduction of more than 2% in the margin on mortgage lending over the cash rate, Naylor said, which has continued to this day.

With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now

Mortgage News and Articles

New social housing aims to transform Ivanhoe Estate New social housing aims to transform Ivanhoe Estate

The sprawling redevelopment aims to boost the supply of affordable housing in Sydney Read more

A new suburb will be built in west Melbourne A new suburb will be built in west Melbourne Mount Atkinson will become home to more than 22,000 people over the next 15 years ... Read more

Surging house prices threaten liveability in Melbourne Surging house prices threaten liveability in Melbourne Analysts warn the city could become just as unaffordable as Sydney, if property trends continue ... Read more

More Aussies would benefit from regional hubs linked to cities More Aussies would benefit from regional hubs linked to cities Shorter commutes could spur higher home sales in regional towns, analysts say ... Read more

More mortgage news and articles

Sponsored Links

Thursday, Aug 17, 2017
Top Featured Rates
Top Bank Rates

Get help choosing the right home loan

Let us help you find the right home loan for your needs.

Tell us a bit about your circumstances:
  • Purpose of mortgage
  • Household Income
    $
  • How much do you want to borrow?
    $
  • How much deposit do you have?
    $
  • How much is your house worth?
    $
  • How much do you still owe on your mortgage?
    $
  • What type of mortgage do you have?


  • How much is your new home?
    $
  • How much do you want to borrow?
    $
  • How soon do you want a mortgage?
Next
  • First name
  • Last name
  • Where do you live?
  • Phone number

Special Offers

Related Keywords