A Federal Treasury analysis has revealed the extent to which competition in the Australian lending market has been eroded by the current financial meltdown in the US. While officials are at pains to explain that Australian banks are in nothing like the situation of their US counterparts, cost of funds has seen competition in the banking sector return to almost pre-deregulation levels.
Non-bank lenders' share of new owner-occupied loans has shrivelled from more than 20 per cent in July last year to around 5 per cent currently, after the financial crisis all but choked off the supply of cash available to smaller lenders. Non-banks comprise mortgage managers like Aussie, Wizard and RAMS as well as building societies and credit unions.
While the Federal Treasurer, Wayne Swan has repeatedly urged disgruntled home buyers to "vote with their feet" and switch to cheaper loans, the growing dominance of the big banks means there is now little scope to do this. Residential mortgage-backed securities (RMBS) - the key source of funds for the non-bank sector - are now being issued at a rate of about $830 million a month, compared with $6 billion a month before the crisis. The Treasury analysis showed if the lending market were to return to normal, home buyers would be able to access interest rates about half a percentage point lower, saving $80 a month on the average mortgage.