Lender calls for fair mortgage competition

One non-bank lender has urged the federal government to “even up the playing field” so it can compete with the big banks.

Wide Bay Australia’s submission to the Federal System Inquiry argued that it was competing at a “significant disadvantage” to the major lenders.

The building society said it applied a risk rating of 35 per cent on home loans, while major banks could apply a weighting as low as 16 per cent.

“A major bank could therefore hold circa 50 per cent less capital for a housing loan for the same borrower and residential security,” Wide Bay said.

“This is a significant disadvantage for smaller lenders. We need to even up the playing field to allow competition and consumer choice.”

Wide Bay also called on the government not to change the Financial Claim Scheme, which guarantees deposits of up to $250,000 per person per institution.

The non-bank lender said a withdrawal or reduction of the guarantee would result in funds moving from smaller lenders to big banks on the “unfounded assessment” that they were safer.

“Any loss of deposit funds will increase the cost of loan funds to smaller lenders and make it difficult for institutions such as Wide Bay Australia to maintain competitive loan interest rates and maintain funding levels for new and existing customers,” it said.

“It is unlikely that lenders would abuse deposit protection by becoming more lax in managing risk, given the high standards of prudential regulation and supervision by bodies such as APRA,” Wide Bay added.

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