The Government urges Borrowers to consider a Credit Union Home Loan
What a credit union home loan can do for you
Wayne Swan, the federal Treasurer in Australia, is urging citizens to use building societies and credit unions when shopping around for a home loan. He feels that the time has come for smaller lending institutions to become more competitive against the big banks of Australia amid the recent interest rate rises. All government officials are not in agreement that this is the right route to choose, however, and that a further inquiry should be made into this issue before proceeding with any changes to the banking sector.
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Mr. Swan has conducted a review of the entire banking system and has some plans in mind regarding banks and the mutual sector. He says that it may be possible to receive up to 100 basis points more for your mortgage by using smaller lenders and credit unions for home loans. He also believes that the banks are arrogant and a credit union would be a better choice.
More banking competition
A new set of measures will be revealed sometime in the coming month about increasing competition in the banking sector. The Government wants to see the creation of a new fifth pillar within the banking system and this pillar would be based on building societies and credit unions.
Joe Hockey, the treasury spokesman for the Opposition, stated that the last inquiry that was held for the banking sector was in 1996 and that he would like to plan for a new inquiry. He is not sure whether the banking system can cope with any future external shocks.
A new inquiry
Since it has been more than 15 years since the last inquiry, and considering the global financial crisis and the HIH collapse, it would be better to look at the stability and competition that is present in the system now to make sure it can cope with the shock later. Mr. Hockey says that he’s been discussing an inquiry into the financial system since July. At that point in time, Julia Gillard said that competition had already been acted upon by the Government.
Mr Hockey went on to say that when he was the Minister of Financial Services the banks discounted against the Reserve Bank’s cash rate movement because it was considered competition. He also stated that the capacity is available to reduce the competition since banks charge about 7.8 and the Reserve Bank has a cash rate of 4.75.
Mr. Swan believes that another inquiry would cause a lot of uncertainty within the banking sector and it is not needed since a fundamental review of the system has already been done. He has a set of planned changes to reveal and no additional inquiry would be necessary.
It is interesting to note that 120 credit unions and building societies asked the government for the same assistance that is given to the major banks in Australia. Small lenders only want the same guarantee for wholesale funding that was given to Australia’s banking sector when the global financial crisis hit its height.
It will be interesting to watch future developments since credit unions and building societies, smaller banks and the big four banks all have a stake in the outcome. Mr. Swan and Mr. Hockey both have valid viewpoints and both are committed to follow through on their recommendations.
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