The improving funding markets in Australia are stirring up competition in the country’s mortgage market, according to the Reserve Bank.
Assistant governor Guy Debelle said that alternative funding sources, like securitisations, are beginning to emerge for smaller banks and non-bank lenders, and after almost 18 months, this was encouraging small lenders to return into the market.
The statement from the Reserve Bank came after the intense political focus on mortgage pricing. Executives from several biggest banks in the country said that they have to lift interest rates in official cash rates to cover the increasing funding costs.
Mr. Debelle, who heads the financial markets division of the central bank, said that the competitive state of the country’s mortgage market ”is reflected in the fact that home lending rates have not risen as much as funding costs”.
In relation to the cash rate, the average rate of variable-rate housing loans had increased to 110 basis points since mid-2007, said Mr. Debelle in a Mortgage Innovation Conference. That is below the 130 to 140 basis-point increase in the bank’s overall funding costs over the same period.
However, the local unit of Dutch Bank ING Direct has warned that second-tier banks, as well as other non-bank lenders continued to operate at a cost disadvantage to major banks.
”While there are promising signs in the securitisation market, current pricing is not profitable,” said Mark Mullington of ING Direct.