BANKING INDUSTRY RESPONDS TO NSW MINISTER FOR HOUSING’S MEDIA RELEASE ON LENDERS’ MORTGAGE INSURANCE

Sydney, 22 February, 2005: The Australian Banker’s Association (ABA) is unaware that lenders mortgage insurance (LMI) premiums are about to increase as inferred in the NSW Minister for Housing’s media release.

However, the ABA opposes in-principle the Minister’s demand that banks absorb any LMI premium increases. Such a policy is anti-competitive and would have a range of negative consequences. For example, it would have the effect of pushing many home borrowers into the unregulated lending sector.

Mortgage lending is probably the most competitive market in Australia, with building societies, credit unions, banks and mortgage securitisers, all competing to offer home loan products. Regulations in this market should be competitively neutral as this is the best way to promote competition and ensure customers receive lower prices and better products.

The Minister has cited bank profits as a reason why LMI increases should be absorbed. Banks make profits consistent with the capital allocated and nature of their business risks. 

It is not correct to say that home borrowers do not benefit from LMI. Without LMI, a significant proportion of first home buyers would not have their loan application approved and would therefore be denied home ownership.

The NSW Government can reduce the cost of home lending by reducing stamp duty and other Government charges. Regulatory compliance costs should also be considered.

The NSW Minister for Housing should urgently make a submission responding to the Ministerial Council on Consumer Affairs (MCCA) discussion paper proposal¹ which, if adopted, may in some circumstances afford a new legal right to borrowers to delay enforcement proceedings of a mortgage originated by a broker. The potential impact will be to increase credit risk and, therefore, LMI premiums.


For further information:

Heather Wellard
ABA Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
 

ENDS