A couple of times already this year, the banks have raised the mortgage rates without any prompting from the Reserve Bank. The banks blame the global credit crisis for these interest rate rises. This global credit crisis has definitely not stopped the banks to continue making profits.

One of the disturbing outcomes of the global credit crisis is the demise of non-bank lenders. The crisis has limited the funding availability for non-bank lenders. The rise in funding costs means that they can no longer offer loans at a discounted rate. The lack of funding margins has led a lot of non banks to close its doors. This is bad news for the market as a whole as it significantly reduces competition.

It was the arrival of non-bank lenders in 90s, that forced the banks to offer more competitive rates and come up with a range of home loan products. And now if the non-bank lenders disappear, the banks will once again start dominating the markets. New data released clearly shows that banks have the bulk of the market share. 9 out of 10 mortgages are being written by banks.

The affect of the global crisis on banks is less than it is on the non-bank lenders. Banks have access to deposit money. And they can use this for lending.

Many analysts believe that the lack of competition is what is encouraging the banks to boldly raise the rates (without any prompting from Reserve Bank).

Something has to be done to revive the non-bank lenders and bring back the competition. Apparently in Canada, the non-bank lenders have access to Government backed mortgage securities. This access to funds has kept the non-bank lending mortgage market alive in Canada. The impact of global credit crisis has been relatively less on Canada.

There are calls to introduce the Government Backed Mortgaged Securities in Australia as well…I am not sure how the Government backed mortgage securities works but at the moment all that I know is that implementing something like that here in Australia, will help revive the non-bank lenders. And that is good news for all consumers. I hope something gets done quickly to bring back the competition.

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