Patrick Secker (Barker, Liberal Party) Share this | Link to this | Hansard source

I am not quite sure what operations of the parliament occurred just then, but I am sure all is well. I find it very interesting that we have had the Australian Labor Party trying to get Australians to believe that because of the government’s so-called poor management and interest rates rises there has been a mortgage stress crisis. But what I find even more interesting is that when we set up an inquiry to look into home lending practices and whether there is any mortgage stress, only one Labor member attended that committee meeting. Here we are in the Main Committee, and both the Labor Party members who were listed to speak have pulled out. That shows the interest of the Labor Party on this whole matter. I think there is no better saying for the Labor Party than: ‘Hypocrisy, Labor is thy name.’

In reality, leading Australian industry stakeholders, banking experts, finance brokers, and government and consumer agencies did not list either as the cause for home loan defaults or mortgage stress. Interest rates were not the cause. That was very clear. Not one of the experts in the area said that there was any sort of problem as a result of interest rates. In fact, when it came to home loan defaults, the four main reasons highlighted at the House of Representatives Standing Committee on Economics, Finance and Public Administration roundtable meeting were: marriage break-up, loss of job, gambling problems and, in 50 per cent of cases, incorrect information supplied by the person taking out the loan—and here we mean income or existing debt levels. So in actual fact half of them are caused by the applicants themselves.

The level of home loan defaults is now 10 times less than when Labor was last in government. So, if we have a crisis now, it must have been one hell of a crisis when Labor was last in government. Even though interest rates have risen—and nobody likes that when they have borrowed for a home or a business—they still remain lower than they were at any time during the 13 years of the Hawke-Keating Labor government. So Labor’s suggestion that we have a crisis is not borne out by the facts.

Labor has dishonestly redefined the term ‘mortgage stress’ to mean those paying more than 30 per cent of gross income in loan repayments. But, as the Reserve Bank pointed out at this hearing, that definition has only ever been applied to income earners in the lowest 40 per cent bracket—not to everyone. In fact, the lending institutions take that into account; they use that formula for those on lower incomes. That is the only time that there is an actual need to use that definition. Instead, Labor applied that definition to 100 per cent of income levels, and that provided a grossly inaccurate end figure.

Labor has also tried to use figures of indebtedness from the high-priced Sydney market and apply them to the rest of Australia, where loans are much lower and are not affected by falling home values. Unfortunately, some people in west Sydney have been affected by that problem. In my electorate assets are still continuing to rise in value and the loans are nowhere near the size of the loans in the high-priced market of Sydney or in some parts of Perth, which is now, it seems, the high-priced house capital of Australia. We must be doing something right over there.

There is no home loan crisis. In fact, the rate of forced sales or repossessions is at near-record lows. The facts show us that less than one in 7,000 home loans default. If that is a crisis, it is a very interesting definition of ‘crisis’. Labor have failed to show any evidence of a crisis and their spin has been proven to be a fraud. Of course, no home loan borrower wants to see interest rates increase, as we saw just recently this year, but a 0.25 per cent rate rise is nothing compared to the increases under Labor, where they actually increased by one or two per cent overnight—not over two or three years. That is the difference between Labor and this coalition government.

I also take this opportunity to note with interest the results from the home loan inquiry that showed that generation Y—and we read about this in the papers—were more prepared to have higher debts for their homes. The reason for that is that generation Y’s life experience under a coalition government has been one of relatively benign and consistent interest rates, lower inflation and much higher employment security, with the lowest unemployment rate in 33 years. So, because things are pretty good under this government, they are more prepared to take a risk than someone who grew up in the Depression years or during World War II, for example, when things were a bit tougher, and who obviously has a much more conservative view when it comes to borrowing.

It is not that generation Y are wrong—which is proved by the fact that fewer than one in 7,000 home loans default—it just shows that generation Y are much more interested and prepared to take that risk because they have had this consistency. They did not have to go through the Whitlam years from 1972 to 1975 in this country and they did not have to go through the 13 years of Labor when interest rates went up to 17 per cent and unemployment went up to 11 per cent. They were really shocking times. They did not have to go through that; generation Y have had a very consistent economy with lots of jobs.

It is interesting to note that Econtech, a highly respected group of economists, often quoted by Labor, I might add, has predicted that after three years of a Labor government—which reminds me a bit of the Gough Whitlam three years—inflation would rise to five per cent and unemployment would increase by 319,000 people, which is about three per cent. So, we would go from 4.3 per cent to something like 7.5 per cent. We certainly would not have any skills shortages then because they would all be unemployed and they would be fighting for a job. GDP would drop by 2.4 per cent, and that is in terms of every Australian. That would mean a decrease of $2,700 for every Australian. Of course, home loan interest rates would increase to double figures for the first time since Labor was last in government, in 1996. This is what Econtech, a group that Labor often quotes, is saying about Labor’s plan. This is because Labor has promised a return to an industrial relations system controlled by unions that even former Labor Prime Minister Paul Keating said, on 9 June this year, was stupid.

It is the committee’s recommendation that the Australian Bureau of Statistics begin collecting and publishing data on housing repossessions. There is a need for better information in this area, which would also lead to a better informed public debate on housing lending and put an end to ridiculous rumour-mongering like we see sprouting from the opposition. Further to that, it is the committee’s firm belief that there is a need for a new approach to credit regulation. The key driver of this is the aim to reduce the practices of predatory lenders and brokers, even though it is actually a reasonably small amount in the whole scheme of things. The committee recommends that the Commonwealth government regulate credit products and advice, and this includes the regulation of mortgage brokers and non-bank lenders.

Finally, the committee recommends that the board of the Banking and Financial Services Ombudsman increase its jurisdictional limit to $500,000, and other external dispute resolution schemes consider the appropriateness of their limits. All in all, I think a very good day was spent by the committee and I support its recommendations.

Michael Keenan (Stirling, Liberal Party) Share this | Link to 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)

Brendan O'Connor (Gorton, Australian Labor Party, Shadow Parliamentary Secretary for Industrial Relations) Share this | Link to this | Hansard source

It is true to say I was a late starter in the debate 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 because this report—a very important one—has just been tabled in the parliament. I have just been listening to a number of government members and others speak on the report. Indeed, I listened to the member for Cunningham in the main chamber, when the report was tabled, refer to the importance of this particular report. I agree with her and I agree with the sentiments in general from the committee members that the report is timely and could also provide some assistance to people who could find themselves in some financial stress as a result of being highly geared or finding the mortgage being a difficult debt to service.

I listened to the member for Stirling say that it was a ludicrous proposition that a household paying more than 30 per cent of its income on mortgage repayments was under mortgage stress. He went on to say—and I was listening on the monitor—that it was ludicrous because he spent in excess of 30 per cent of his income on his mortgage and he did not find himself under financial stress. I am glad that the member for Stirling is not under financial stress, but I think it is important to distinguish parliamentarians, who are on a minimum of $130,000 gross per annum, from householders, for example in my electorate, whose household income is $50,000. If you are spending 30 per cent of your income when you are on $50,000, or even in excess of that, of course you are going to feel the strain compared with somebody on $130,000 or more, given there might be other householders deriving income in the member for Stirling’s household—and I do not know. I think he is right in saying that, if a person is paying 30 per cent or more, it does not necessarily dictate that they are under stress. But I think it is unequivocal that, if you are servicing a mortgage with 30 per cent or more of your income and you are on a household income of no more than $50,000, $60,000 or $70,000 per annum, there is enormous strain, because the discretionary income of somebody on half the pay of the member for Stirling or, indeed, me is far less than ours is. The capacity to pay that mortgage is far less given all the other necessities of life for families. Therefore, whilst I accepted the view that it did not necessarily dictate mortgage stress to be paying 30 per cent or more of one’s income to service a mortgage, it seemed insensitive of the member for Stirling—or, indeed, any other member—to conclude that people on low to moderate household incomes would not suffer some strain as a result of that proportion of the income being provided to the mortgage. I think the member, with respect, was wrong in blithely disregarding that assertion.

It is fair to say that there has to be some arbitrary measure to consider the strain that Australian householders are under. I think it is important to note that there was strain during the recession; there was strain on households when interest rates hit 17 per cent. In this debate it is important to remember the proportion of income to service the mortgage, not just the interest rate percentage. What we know is that, on average, a higher proportion of household income is being used to service a mortgage now than it was in the recession in 1991. That is for a variety of reasons and does not necessarily place everybody under strain, but I think it is important for the government to at least acknowledge there are people hurting out there. I do not think the government accepts that there are people who are unable to get into the housing market, firstly, because houses prices have gone up so fast and so high that people are outpriced and are excluded from buying a home. That is happening now more and more. It is also true to say that people are mortgaging themselves up to their eyeballs to buy a house and get into the housing market. The problem for people is this: there has been exponential growth in the price of houses but not the same comparative increase in salaries or wages.

On one hand, if you are the owner of a house or houses, you would feel comfortable with that situation because you could see the value of your property going up—there is equity. For those people who have found themselves in a position of having bought real estate prior to the increases, it is a bit like winning lotto—good timing, you could say, good luck. But the fact is that they are beneficiaries of the rate of increase in the value of land and houses. But for those people—singles or couples or families—who are seeking to enter the housing market now without equity and on an average wage, it is very difficult.

It is very difficult for people who have taken that plunge, knowing that it does not seem to be getting any better and that it is not going to get any cheaper. You have to get into the market to be able to build up equity in a house and hope the house will increase in value, so you build up some equity and you feel secure. There is advice being provided to people that they should take the leap and buy a house because things are not going to get better in this area, things are only going to get worse. People then find themselves very heavily geared and find themselves sailing very close to the wind financially and therefore under enormous strain to service their mortgage, their debt. It is important, therefore, for this committee to conclude, among other things, that there needs to be proper collection of statistics that would allow for a proper analysis of what is going on regarding repossessions.

In recommendation 1, the committee recommends that the ABS begin collecting and publishing annual data on housing repossessions and that the data should be disaggregated to include, as a minimum, breakdowns by loan type, lender type, primary cause and location. I think that is a very sensible recommendation and I would support it.

In recommendation 2, the committee recommends that the Commonwealth government regulate credit products and advice and this includes the regulation of mortgage brokers and non-bank lenders. There is no doubt—and certainly this report in its introduction concludes—that there has been a growth in the lending industry, which can be a good thing because it can bring about competition which should bring down prices. But there has also been some imprudent behaviour by lending institutions, for example, providing loans to people which are well in excess of what they can pay back. I know people say, ‘How paternalistic should we be? If people think they can pay back the loan, who are we to say they are not in a position to?’ But that is why you have experts and that is why you have people to make decisions in everyone’s interests to ensure people can pay the mortgage. The worst thing that can happen is to provide money to a couple and for that couple or family not to be able then to properly service the debt, let alone pay the debt off.

This report was timely. I do not agree with the member for Stirling, who says that 30 per cent of your income is not necessarily stress. Try living on $50,000 a year, not $130,000, and you will find that 30 per cent of that income being put off to service the mortgage is a difficult task for families in this country, no less than it is for the constituents of the electorate of Gorton. (Time expired)

Debate (on motion by Mrs Irwin) adjourned.