Lenders take opposing views on bank levy

The Major Bank Levy has been passed in Australia’s Lower House today, following a recent Senate committee hearing and inquiry that saw a variety of banks, financial institutions and economic commentators have their say.

The levy is set to raise over $6 billion from Australia’s leading banks, which could have a knock-on effect on on home loan interest rates, fees, and other banking charges. 

For the Levy
Against the Levy
  • The Big Four (Westpac, ANZ, NAB and CBA)
  • Macquarie Bank
  • Australian Bankers Association
  • SIFSA
  • Finance Sector Union
  • Business Council of Australia

 

For the levy

Several of the non-major banks and consumer-owned financial institutions came out in favour of the levy, supporting a levelling of the playing field with banks that are “too big to fail”, and encouraging competition.

BOQ supports the Levy as a step towards a more competitive banking system as it properly recognises the major banks’ too-big-to-fail funding advantage that they enjoy.”

Suncorp said that while it does not generally support new or increased taxes on Australian businesses, it welcomes any initiative which helps to improve competitive neutrality in the banking sector.

While Bendigo and Adelaide Bank expressed its support of the levy, it also acknowledged its issues, and voiced its support of a considered approach to its legislation and implementation.

Against the levy

As expected, Australia’s Big Four banks came out swinging against the levy, proposing a number of amendments, including:

Introducing a sunset clause for the levy (e.g. when the budget returns to surplus)

  • Extending the levy to consistently cover foreign banks
  • Reviewing the legislation once a number of years have passed
  • Adding a mechanism to suspend the levy in the event of financial stress

In addition, among NAB’s objections to the levy were concerns of what impact it may have on Australia’s economy as a whole from an international perspective:

“Interest in the levy has been significant and largely negative in the context of it raising political risks associated with the operation of the Australian financial system and the general attractiveness of Australia as an investment destination.”

While ANZ opposed the levy, it acknowledged its commitment to rebuilding trust with the Parliament and the community, and accepted that the levy would pass into law.

The fifth bank set to be affect by the levy, Macquarie Bank, argued that it shouldn’t be counted as a “major bank”, due to domestic banking making up a small percentage of its wider investment and wholesale financial operations.

The Australian Bankers Association acknowledged its support for a strong and competitive banking industry, noting that several non-major banks supported the proposed levy in order to create a more level playing field.  

However, the ABA also described consultation for the bank levy as “rushed and inadequate”, expressing concern that the brunt of the levy’s costs would be borne by a combination of savers, borrowers, shareholders, employees and suppliers, and that imposing a levy on profitable institutions sets a worrying precedent for other successful Australian businesses.

The Business Council of Australia echoed these concerns:

“The levy is poor public policy, the problems of which have been compounded by poor process. Both the policy and the way it was introduced increase sovereign risk, undermine investor confidence and raise the question – which industry is next? The levy also represents another ‘one-off’ in a long line of ‘one-offs’ that undermine investor confidence.”

Other organisations voiced concerns regarding the levy’s potential impact on other aspects of the Australian economy. According to the Self-managed Independent Superannuation Funds Association, the bank levy will cause collateral damage to 27 million superannuation account holders whose funds invest heavily in bank shares, and a further one million with accounts in self-managed funds.

Having passed the House of Representatives, the Major Bank Levy is set to go to the Senate before the end of the week.

Did you find this helpful? Why not share this news?

Advertisement

RateCity

The money talks which you don't need to avoid any more

Subscribe to our newsletter so we can send you awesome offers and discounts

Advertisement

Learn more about home loans

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

Mortgage Calculator, Repayment Type

Will you pay off the amount you borrowed + interest or just the interest for a period?

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Why was Real Time Ratings developed?

Real Time RatingsTM was developed to save people time and money. A home loan is one of the biggest financial decisions you will ever make – and one of the most complicated. Real Time RatingsTM is designed to help you find the right loan. Until now, there has been no place borrowers can benchmark the latest rates and offers when they hit the market. Rates change all the time now and new offers hit the market almost daily, we saw the need for a way to compare these new deals against the rest of the market and make a more informed decision.

What is a debt service ratio?

A method of gauging a borrower’s home loan serviceability (ability to afford home loan repayments), the debt service ratio (DSR) is the fraction of an applicant’s income that will need to go towards paying back a loan. The DSR is typically expressed as a percentage, and lenders may decline loans to borrowers with too high a DSR (often over 30 per cent).

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.

What is a construction loan?

A construction loan is loan taken out for the purpose of building or substantially renovating a residential property. Under this type of loan, the funds are released in stages when certain milestones in the construction process are reached. Once the building is complete, the loan will revert to a standard principal and interest mortgage.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

How much is the first home buyer's grant?

The first home buyer grant amount will vary depending on what state you’re in and the value of the property that you are purchasing. In general, they start around $10,000 but it is advisable to check your eligibility for the grant as well as how much you are entitled to with your state or territory’s revenue office.