Industry newcomer Volt Bank wants the Reserve Bank to loosen restrictions on new lenders accessing the A$200 billion Term Funding Facility as it prepares to write its first home loans.
Co-founder and chief executive Steve Weston confirmed to Banking Day on Tuesday that Volt planned to begin marketing mortgages in the next three months.
“We’re poised to go in to the home lending market – our plan is to do it by the end of the year,” he said.
“Volt’s aim is to price our mortgages competitively, but that is going to be harder in the current environment where the four major banks get billions of funds through the Reserve Bank’s Term Funding Facility at only 0.25 per cent while new banks like us aren’t eligible for a cracker.
“We would like to see the government and the RBA amend the criteria for how that money is allocated so that we’re able to tap the facility also.”
Volt is the latest financial institution to call for changes to the eligibility requirements of the TFF after other recent market entrants - 86 400 and Athena Home Loans - last week said it discriminated against small lenders.
The major banks are set to claim most of the TFF’s cheaply-priced cash because the RBA has determined allocations for each institution based on the value of loan assets already on their balance sheets.
The big four banks – CBA, Westpac, ANZ and NAB – together account for more than 80 per cent of mortgage and business lending in Australia which means they have received the largest allocations.
While new banks and home lenders acknowledge that the majors should account for the largest slices of the taxpayer-backed funding pie, they argue the current allocation rules are unduly boosting the dominance of the Big Four in the fixed rate mortgage market and putting small players at a disadvantage.
They want the RBA to widen the eligibility requirements to give new lenders deeper access to the facility.
The TFF allows banks and credit unions to tap the TFF for up to 3 per cent of their existing loan books.
That means a new bank like 86 400 is only eligible for approximately $1 million of TFF funding because it had a $39 million loan book at the end of July.
CBA, the country’s largest home lender, is in line to haul in more than $30 billion from the facility.
Volt, which secured a full banking licence in January last year, is eligible for no funding under the TFF rules because it currently has no loans sitting on its balance sheet.
“We’re at a competitive disadvantage to the major banks who can access the cheapest funding out there,” Weston said.
“Clearly, the intent of the government and the RBA introducing the TFF is to help the public and that is a good thing, but they should not lose sight of the anti-competitive effects of the facility in its current form, especially for new players like us.”
The major banks also are expected to use the cheap TFF funding to reclaim borrowers who fled to non-bank lenders in the last two years.
The RBA has excluded non-banks from accessing the TFF, a decision that is likely to severely erode competition in the home loan market.
Non-banks such as Athena Home Loans, which specialise in prime residential mortgages, are coming under the greatest pricing pressure from the major banks.
The impact is less severe on other non-bank lenders with alternative business models.
Evan Dwyer, the managing director of Melbourne-based lender, RedZed, said he was sympathetic to the challenges confronting new providers of home lending, but believes the Morrison Government’s measures have supported his business.
“I’m sympathetic to the arguments of the new lenders – it’s hard enough to start up a business to have your competitive position affected by the stroke of a pen,” he said.
“From RedZed’s perspective, I think the federal government has been actively supporting non-banks.
“The support for our business from the Australian Office of Financial Management has been outstanding.”
RedZed specializes in marketing mortgages and business loans to self-employed borrowers.