Michael Keenan (Stirling, Liberal Party) Share this | Hansard source

I rise to talk on the report of the inquiry by the Standing Committee on Economics, Finance and Public Administration into home loan lending practices and the processes used to deal with people in financial difficulty. I note, like the member for Barker does, that although we hear a lot of sound and fury at the moment, a lot of faux anger about the state of the mortgage market and the state of the home lending market in Australia, only one of the Labor members has even bothered to comment on the tabling of this report. I find that extraordinary. They are very happy to come and do the sound bites about mortgage stress—so-called mortgage stress—or about how working families out there are hurting, yet when it comes to doing any work—coming in here and talking on the report—they are absolutely nowhere to be seen. I think it shows you how seriously we should take this opposition; a sound bite opposition that is more interested in stunts than anything else.

The committee prepared this report after a one-day roundtable hearing in Canberra. I would like to thank all the people that took the time to come down. It is a reasonably modest report. There are three recommendations out of the report, and I would encourage the government to seriously consider them.

The day was opened by a contribution from the Hon. Nick Greiner, who will be well known to many Australians and is probably as distinguished an Australian as you would find anywhere. He was appearing in his capacity as chairman of PMI Mortgage Insurance, so he would have some idea about the state of the mortgage market in Australia. He commented I think very importantly—because this was borne out by almost all the other speakers on the day—that we are not in some sort of crisis of mortgage defaults. In fact, it is exactly the opposite. Mortgage defaults are at historically low levels. This is contrary to some of the media reporting that you might hear. The reality is that mortgage defaults are at incredibly low levels. The member for Barker commented previously that only one in 7,000 people are actually defaulting on their mortgages, so we have an extraordinarily robust system, and I think anybody who calls that a crisis is guilty of hyperbole of the highest order. I think this is the most important point that you would take out of the day: we do not have some crisis in home lending in Australia.

We hear of this term ‘mortgage stress’. Apparently that is defined as paying more than 30 per cent of your income on mortgage payments. I think that is a ludicrous definition. I pay more than 30 per cent of my income on mortgage payments; it does not necessarily mean that I am in mortgage stress. The point is that the household wealth of Australians has changed substantially. In fact, astonishingly, if you look at the figures, household wealth in Australia—this is in real terms—has actually doubled in the past nine years. That is quite an extraordinary figure. Household wealth has doubled in real terms within the last nine years. Australians do have more debt, but they are also far wealthier. If debts are anchored to assets, that is a totally different thing than debt that is anchored to consumer spending.

It is also very important to point out that interest rates are much lower than they have been historically. We have heard a lot of talk about interest rate rises, but they remain at what is historically a very low level. During the past decade, as we would all know, house prices across the country have increased markedly. In my home state of Western Australia in the past few years we have seen an explosion in what it costs to purchase a house. Obviously, people are going to have to take on more debt if they are going to get into these markets.

There is another point arising from the inquiry that I think is worth mentioning, and that is how good deregulation of the financial system has been for Australian consumers. The margins that are charged by banks are now substantially lower than they would have been in previous years. Competition is extraordinarily beneficial for people who are entering the mortgage finance market. Finance is much easier to obtain. I will go back to that because obviously that can lead to problems, but I think it is important to note that my family has a background in real estate. We have owned a real estate agency for many years, and my parents started it with their partners. One of the most important things they could do for the client was to find housing finance. It was extraordinarily difficult to do that. The banks were extraordinarily uncompetitive. They had extraordinarily stringent criteria for loaning money and, as a result, people who could afford to repay a loan would not be able to access finance. The situation could not be more different today. There are a vast amount of institutions in the market. They compete very heavily for your business. They charge much lower margins than they would have charged 10 or 15 or 20 years ago and the consumer has access to a wonderful wealth of market information. It is very easy for a consumer to jump on the internet and compare rates and service from home loan lending institutions. You will find that even the big four banks—you might, possibly unfairly, say they are not organisations that in the past have been strictly focused on customer service—will come to your house on the weekend to talk to you about housing finance.

Competition has been an extremely good thing for consumers—I think that is very important—but it can have a downside. A downside is that people might be accessing credit when they should not be accessing credit. What we heard at the roundtable and what the report makes clear is that there is actually not a lot of evidence that there is a lot of unsustainable lending going on. Lending practices have changed. They are vastly more competitive, but there is not a lot of evidence that people are getting mortgages when they should not.

I think it is an important point to make because the Australian market is terribly different from the US market. If you look at the US subprime market there is a lot of evidence of predatory lending. There is a lot of evidence that people have been lent money when they should not have been lent money. They have been lent money when they had no hope of being able to repay that mortgage. But the Australian market stands apart from that. The Australian market is extraordinarily different.

When we talk about low-doc loans and easier access to credit, I think we should remember that that can actually be an extraordinarily good thing, although there may be a negative side. It is a good thing that people can access housing finance. There are whole classes of people who, 20 years ago, would never have been able to buy their own homes and now they are able to buy their own homes, thanks to deregulation of the market and thanks to the increased competition within that market.

This report makes three recommendations. I think most reasonable people would agree that recommendation 1 and recommendation 3 are reasonably non-controversial. Recommendation 1 is that the ABS begin collecting and publishing annual data on housing repossessions. The data should be disaggregated to include, as a minimum, breakdowns by loan type, lender type, primary cause and location. I recommend that the government think seriously about this recommendation. It makes sense for that information to become available, and I hope it is a recommendation that they will consider and agree to.

Recommendation 2 is probably the recommendation that the government would need to look at in the most detail and it is one that is possibly worthy of greater consideration. The committee recommends that the Commonwealth government regulate credit products and advice. This includes the regulation of mortgage brokers and non-bank lenders. We currently have an unusual system in which this is regulated at the state level, and the committee was of the view that it would be beneficial if it were regulated at the Commonwealth level. If the Commonwealth were to consider that, I certainly hope that they would do so by way of light-touch regulation. I do not think we heard evidence that the system is irrevocably broken or that bad practices are widespread throughout the industry. I note that the industry’s peak body was one of the organisations that recommended national regulation.

Recommendation 3 is that the board of the Banking and Financial Services Ombudsman increase its jurisdictional limit to half a million dollars. This limit should be indexed annually and other dispute resolution schemes should consider the appropriateness of the limits. Most people would agree that that is a sensible response to the fact that mortgages have substantially increased because household wealth has increased and so has the size of the average mortgage. I do hope that the government will look seriously at these recommendations. (Time expired)

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