The only game-changers in the lending sector over the past two decades have been non-bank lenders, mortgage brokers, and securitisation, the Mortgage and Finance Association of Australia said.
In its submission to the Financial Services Inquiry, MFAA said the fact the Australian lending market is dominated by four institutions – APRA’s latest figures show the big four command 84.3% of the market – means there is “no competitive blowtorch” which forces them to innovate and differentiate.
While this year there has been “sporadic competition” between major lenders for deposits and on some selected lending products, by and large there is not enough competition to produce “game changer” innovations, the association said.
Events such as the GFC, deposit and wholesale funding guarantees, the slump in securitisation, bank mergers and the exit fee ban have all had a negative effect on competition, MFAA said.
“It was argued by the government that the banning of exit fees in 2011 would stimulate competition by encouraging borrowers to ‘walk across the street’ but the reality is that apart from a short burst of activity around the time of the introduction of the ban, the level of refinancing now in 2014 is lower than what it was pre-GFC.”
Only 1% of people switch their main banking relationship per year and 7% switch their home loans, research published last month by RFi shows.
Instead, the real drivers of refinancing have been the entrance of non-bank lenders – which brought innovations such as deferred establishment fees – and the growth of the broker channel in the nineties, MFAA said.
According to independent researcher Comparator, 47.3% of mortgage loans were introduced to lenders by mortgage brokers in the December quarter.
MFAA is a strong advocate of securitisation, and its submission proved no exception.
The rise of the big four market share during GFC occurred, “not as the result of any innovation or competition by them”, but because of the collapse of the securitisation market funding their non-bank competitors, said MFAA.
“It is abundantly clear that the missing factor that was evident in the market pre-GFC is securitisation. This vehicle for funding collapsed in all markets globally except in Canada where it was successfully maintained as the result of Canadian government guaranteed mortgage-backed-securities and Canadian mortgage bonds, a system which has operated successfully in various forms since 1987.”
Australian critics of these programmes – such as FBAA’s Peter White
– have suggested they put the taxpayer at risk, or that they fall into the same category as the failed US Freddie Mac and Fannie Mae programmes.
But MFAA disputed this, saying the programmes have provided continuing revenue each year for the past 27 years to the Canadian government, assisting in funding public housing projects and retirement homes.
“Whether or not a Canadian-type system is adopted, the Canadian experience and Australia’s pre-GFC experience demonstrate that a pre-requisite for a more competitive market is a thriving securitisation market,” the association said.
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