Media Release

Home borrowers paying a premium for Rudd's banks

Friday 4th December 2009

The gap between official interest rates and mortgage rates charged by the major banks has blown out to more than one percentage point since the start of the global financial crisis, Shadow Minister for Housing and Local Government, Scott Morrison said today.

“As interest rates fell, the major banks failed to keep pace and drop their rates as quickly. Now interest rates are heading back up, they are ahead of the pack,” Mr Morrison said.

“What mortgage holders lost on the swing on falling interest rates, they are now failing to pick up on the merry go round as rates rise,” he said.

“Under the Rudd Government competition for new mortgages is at its lowest level on record. Under the Coalition, one in five new mortgages by value was with the non bank sector. This ratio is now less than one in ten.

“The Rudd Government’s policy of favouring the major banks and demanding nothing in return has left mortgage holders flat footed as rates rise.

“There are more than 200,000 first home buyers who were encouraged to make the biggest financial decision of their lives with the boost to the first home owners grant. These home owners have now had three successive rate rises and are paying even more, due to the strong position of our major banks.

“By contrast in Canada, the policy of guaranteeing mortgages rather than institutions has resulted in more competition and lower rates.

“The difference between the movement in the cash rate and mortgage rates for the major banks since the beginning of the global financial is now more than 100 basis points or 1%. This represents an additional $3,000 a year on the average $300,000 mortgage.

“This is a hefty premium for families to be paying this Christmas for the Rudd Government’s decision to favour the major banks.

“While the Government continues to accept the bank’s arguments about their increasing costs of financing, it is unclear to the Opposition why families and other mortgage holders should be forced pay more.

“When you take into account all of the other costs involved in the home lending business rather than just the net interest lending margin, the overall profitability of the bank’s residential mortgage books has been rising not falling in recent times.

“Commissions are reportedly down 30% and there is much lesser need for big marketing budgets due to reduced competition for new mortgages, now at record lows.

“Home lending has represented a far safer and more profitable bet for banks than the alternatives. Their business banking losses are clearly being supported by their gains in the residential lending sector.

“The Reserve Bank Governor has also acknowledged this when he stated that the RBA did not believe there was any shortage of supply of funds for home loans.

“Australia’s mortgage paying families need more than Labor’s talk. They need action that restores competition to our banking sector,” Mr Morrison said.