Lack of widespread competition and innovation in home lending says MFAA
In a submission to the Senate Industry into Housing Affordability, the Mortgage and Finance Association of Australia (MFAA) has called for the Federal Government to facilitate competition in the banking system.
The MFAA says that one of the main causes of housing finance approvals growth being currently historically low levels is "lack of widespread competition across the housing lending sector, inhibiting the development of innovating mortgage products focussing on new buyers."
While housing supply is sited as a cause for housing affordability, the MFAA says that there needs to be shorter term solutions that assist first home buyers to bridge the gap between finance and current housing prices.
The MFAA claims that small lenders face discriminatory funding treatment under RBA and APRA regulations which means average interest rates available to borrowers are higher than they would otherwise be.
According to the submission, the four major banks hold 79% of the housing loan market, compared with 58% just before the global financial crisis.
"Although the Big 4 argue that they compete aggressively with each other in the market, all their loan products and interest rates are very similar and appreciably higher than those of many smaller lenders," the MFAA said in its submission.
As the MFAA suggests the big banks do have packaged home loans that are competitive with one another according to the Mozo home loans database. Commbank's standard variable (Wealth Package) sits at 5.10% plus $375 annual fee, Westpac's Rocket Repay (Premier Advantage Package) and NAB's Tailored Home Loan (Wealth Package) has a rate of 5.08% (plus $395 annual fee), and ANZ's Variable Rate (Breakfree Package) has a rate of 5.08% plus an annual fee of $375.
Are their rates appreciably higher compared with other players? Mozo compared the ANZ loan using Mozo's home loan comparison calculator, with the online lender, loans.com.au which has the cheapest variable rate loan in the market at 4.49%. On a $300,000 home loan this equates to a difference of $102 in monthly repayments or a saving of over $1200 annually. Over the life of a 25 year loan, the difference between the loans is $39,970 - we'd call that considerable.