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$4bn cash injection to pressure
banks to pass on rate cuts
3/10/2008
Australian consumers will be the big
winners benefiting from the federal government's move to inject $4bn into the
non-bank mortgage market.
By buying high quality residential
mortgage backed securities (RMBS) from the non-bank lenders, the government
was able to provide some ammunition to smaller lenders in order to compete with
the big banks.
While the $4bn outlay is a tiny sliver
of the $240bn a year residential mortgage industry, Tony Crossley, CFO with
Mortgage Choice, said the investment is a significant step in the right direction,
towards renewed competition and a healthy mortgage market.
"Lenders can only lend the money
they know they'll have," he said. "Smaller lenders have experienced
more difficulty getting certainty on future supplies of funds in light of the
ongoing US financial crisis. Those who meet the government's criteria will now
be able to adjust their lending volumes upwards - by only a little at first
- knowing that the money is there," Crossley explained.
Non-bank lenders have been frozen
out of the lending market in recent times because they rely on overseas money
to service customers, but that supply has dried up with the credit collapse
in the US.
"This move will put pressure on the major banks to pass on any future interest
rate cuts, adding another incentive for people to get into the market now,"
said John Edwards, chairman of Residex. "This will bring competition and
liquidity back into the market."
Crossley agreed that the government initiative can only be a good thing for
Australian consumers, not only because it will encourage a wider choice of home
loans available on the market, but also because it should have a downward influence
on interest rates.
"I hope more contributions will follow. There's a good chance more contributions
will follow, but in this environment nobody is betting on anything," he
explained.
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