The leader of the non-major political party, Richard Di Natale, on Wednesday (4 April) advocated for the establishment of a nationalised, online People’s Bank that “injects real competition into the banking system” by providing low interest loans to customers.
“In the face of ongoing misconduct and price gouging, it’s time for [the] government to step in and ensure that there is a low-cost banking service, backed by the RBA, that is focused on the everyday savings and mortgage needs of customers,” the Greens’ People’s Bank proposal states.
Under the proposal, Australians would be able to set up accounts directly with the RBA for everyday banking facilities and receive customer service online, over the phone, or face to face through Australia Post.
Customers would also be offered “no-frills mortgage tracker accounts” pegged to the RBA wholesale cash rate.
Home buyers would be able to borrow up to 60 per cent of the value of their property directly from the RBA, the party said, with the minimum interest rate starting at 3 per cent, plus a 0.5 per cent administration fee for service provider partners.
As the big four banks’ mortgage rates often exceed 4.5 per cent for “principal plus interest” loans, the Greens said they believe that a direct line to the RBA will provide current and future home owners with a “much-needed competitive advantage over investors” and turn around the declining home ownership rate.
“Nowhere is the destructive impact of the current status quo more evident than in the housing sector, where sky-high house prices in most big cities demonstrate how our housing market has been rigged to lock out first home buyers, with the big four banks raking in huge dollar profits for more than a decade,” the Greens’ proposal states.
However, home buyers who need to borrow more than 60 per cent of the value of their property would have to source the additional funds from retail banks.
The Greens explained in its proposal that restricting the loan-to-value ratio (LVR) is to ensure minimised risk to the public.
Federal Treasurer Scott Morrison criticised the 60 per cent LVR, saying that it would probably only suit people “on high incomes living in quite pleasant parts of Melbourne and the inner city”.
“And let’s not forget what the impact would be if all those low-risk loans are going to be taken up with low rates to higher income earners. Well, who is going to fund for everyone else? What’s it going to do to the risk of those loans and price of those loans for everyone else? It is a very ill-considered, not surprising idea from the Greens,” the Treasurer said.
Labor leader Bill Shorten also remained unconvinced of the practicality of a People’s Bank, telling reporters on Wednesday that putting “more cheap cash into the market” will only raise the cost of housing.
“What we should do is tackle negative gearing, and I think that’s the better reform,” Mr Shorten said.
However, the Greens acknowledged that the People’s Bank would be a “first step towards reforming the banking sector”, not a standalone solution.
As such, the party has proposed additional reforms that enable credit unions and community-owned banks to offer comparable products, such as removing restrictions around the use of “banking” terms that “curtails their ability to advertise their services and to educate the public”.
Credit Union Australia CEO Rob Goudswaard said that Mr Di Natale’s statements reinforce the importance of providing credit unions and community banks the tools to become stronger alternatives to the major banks.
However, the CUA CEO noted that the proposed People’s Bank is similar to existing credit unions, which he described as “Australia’s original people’s banks”.
He added: “The key challenge, which has been constraining growth for the mutual sector to date, is that we haven’t been able to raise capital to invest and to grow, so we’ve been reliant on retained earnings as our only source of capital.”
Customer Owned Banking Association CEO Michael Lawrence communicated a sentiment similar with Mr Goudswaard’s, stating that the customer-owned banks had been operating in Australia for more than 70 years.
If you’re feeling overworked and overwhelmed in this fast-paced mortgage market, it’s time to make some changes, and the Business Accelerator Program can help! Early bird tickets are on sale now. Work smarter, not harder, this year.
Tas Bindi is the features editor on the mortgage titles and writes about the mortgage industry, macroeconomics, fintech, financial regulation, and market trends.
Prior to joining Momentum Media, Tas wrote for business and technology titles such as ZDNet, TechRepublic, Startup Daily, and Dynamic Business.