How affordable is your home loan? Mutuals lead way on interest rates.
03 April 2008
Credit unions and mutual building societies have become even more important to competition in the home loan market due to the decline of mortgage originators, a Federal Parliamentary Inquiry heard today.
Abacus – Australian Mutuals, the industry body for credit unions and mutual building societies, appeared before the Senate Select Committee on Housing Affordability.
Credit unions and mutual building societies are customer-owned Authorised Deposit-taking institutions (mutual ADIs), licensed and supervised by the Australian Prudential Regulation Authority to engage in retail banking.
Collectively, mutual ADIs have around 12 per cent of the household deposits market (second only to the Commonwealth Bank) and around 7 per cent of the owner-occupied home lending market.
"The impact of the credit crunch on non-regulated lenders has meant that credit unions and mutual building societies are more important to competition than ever. Credit unions and mutual building societies continue to set the benchmark when it comes to interest rates on home loans – our members are on average 40 to 50 basis points lower than the banks," said Abacus CEO Louise Petschler.
"Mutual ADIs are less reliant on wholesale markets for funding than banks and, unlike banks, mutual ADIs are not under pressure to put shareholders ahead of customers," Ms Petschler said.
"According to Cannex, some members of mutual ADIs are paying nearly one and a quarter percent less interest on their home loan than the lowest bank interest rate."
As indicated in the table below based on Cannex data on standard variable home loans, credit unions and mutual building societies have, on average, held rates at levels well below the banks.
|
1 April 2008 |
Avg |
Min |
Max |
|
Banks |
9.38 |
9.32 |
9.47 |
|
Credit Unions |
8.84 |
8.10 |
9.39 |
|
Building Societies |
8.89 |
8.49 |
9.32 |
The competition and choice provided by mutual ADIs against banks in the home loan market has become even more important as competitive pressure from non-ADI lenders has diminished dramatically. According to the Reserve Bank of Australia, the share of owner-occupier loan approvals by wholesale lenders (mainly mortgage originators) fell to around 6½ per cent in January 2008, compared with around 12 per cent for the previous few years.
Abacus’ submission to the Senate Inquiry supports the Government’s proposed First Home Saver Accounts (FHSAs) but urges a reduction in the complexity of the policy framework.
"We seek a regulatory framework for the new First Home Saver Accounts that takes into account young people’s needs," Ms Petschler said. "We must be able to offer FHSAs that are simple, low-risk and easily understood."
Contact:
Louise Petschler, CEO
0408 239 226 or 02 8299 9046
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Mark Degotardi, Head of Public Affairs
0419 998 201 or 02 8299 9053
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