Government invests $8 billion into mortgage sector, auctions steady after rate rise

The Federal Government has announced it will invest another $8 billion in residential mortgage-backed securities in order to support competition in the home loan market.

Treasurer Wayne Swan has said the investment is hoped to spur competition to regional and smaller lenders, and will hopefully put pressure on housing prices.

“The problem is that the securitisation market is still weak and that’s why the Government has decided to provide further support to that market,” Swan said yesterday. “That will increase the funding that will go to the smaller lenders and we need the smaller lenders in the game to keep the market competitive.”

The announcement comes at a time when the big four banks have increased their share of the home loan market from 60% to 81% over the past two years, while non-bank lenders have seen their share fall from 12% to 2.5%.

The Government announced $8 billion for mortgage bonds a year ago, but those funds have been used up with Swan having said the Government is concerned about the strength of the market.

The Government has been concerned about the power of the big four banks to raise interest rates faster than the decisions made by the Reserve Bank. Last week the big four raised interest rates by 25 basis points, just days after the RBA lifted the cash rate to 3.25%.

“I think the Australian people and the Australian Government would be quite angry with the four majors if they were to move outside the official Reserve Bank cycle,” Swan said.

Australian Property Monitors senior economist Matthew Bell says the move is a good one that will help create competition.

“I think this is a good thing. It’s designed to support any lenders that are not part of the big four, and so any move for competition is a good one, as they have built their market share up quite strongly.”

Meanwhile, auction results remained steady despite last week’s RBA decision. Bell says the possibility of future interest rate rises, and the reduction of the first home owner’s grant, shouldn’t have too much impact on the market.

“While the results may have declined a little bit, I don’t see this as any sort of pullback. I don’t think there’s too much of an impact, as it’s a pretty robust market and I don’t think we have anything to worry about regarding clearance rates.

In Melbourne, 599 auctions were reported over the weekend of which 492 sold, resulting in a clearance rate of 82%. Total sales reached $347.57 million.

Real Estate Institute of Victoria chief executive Enzo Raimondo said in a statement the results are “broadly in line with the overall performance this year, suggesting that increases in interest rates have already been included in purchasers’ decisions”.

In Sydney, 203 properties were put up for auction, with 145 sold and 14 withdrawn, resulting in a clearance rate of 67%. Total sales reached $114.91 million.

In Brisbane, only 36 properties were put up for auction, of which 18 sold, with a clearance rate of 44%. In Adelaide, 25 properties sold out of 35 on the market, with sales totaling $11.78 million and a clearance rate of 71%.