The federal government’s plan to remove its guarantee for large deposits and wholesale funding will do little to help the mortgage fund sector, according to industry experts.
After 31 March 2010, no further deposits above $1 million or related interest payments can be guaranteed by the government. But all deposits up to $1 million will continue to be covered automatically and for free by the Financial Claims Scheme.
Inflows into the mortgage fund sector are not likely to resume at pre-crisis levels following the government’s announcement of the wholesale guarantee being lifted, Balmain Funds chief executive John Thomas said.
“We don’t expect that this announcement will help the mortgage fund sector,” he said.
“The guarantee has only been removed for the wholesale part of the market and not the retail part. Predominantly, investors in mortgage funds are retail investors who have an average investment of tens of thousands of dollars as opposed to millions of dollars.
“So for the mortgage fund sector to be helped it would mean that we would need the government guarantee lifted from retail deposits and that’s not due for review until October 2011.”
Thomas is chief executive of the Balmain Mortgage Trust, which had been frozen since the government guarantee was first put in place in October 2008. The trust was reopened and relaunched last December as a term investment rather than an on-call investment.
Australian Unity general manager of retail Adam Coughlan said: “The government’s announcement that it’s withdrawing its guarantee for large deposits and wholesale funding by 31 March is certainly welcome by us in the sense that the crisis situation when it was put has undoubtedly long since passed.”
“However, we feel it will still take some time for inflows to come back into mortgage funds. It will certainly start as a trickle and once the guarantee is lifted on all deposits we would expect inflows into mortgage funds to be much higher than from the levels seen during the global financial crisis,” he said.
The Australian Unity Mortgage Income Trust has $814 million in funds under management and is currently offering restricted monthly redemptions.
Lonsec general manager of research Grant Kennaway said even if all the guarantees were removed he wouldn’t expect inflows to immediately return, because the market is still reassessing the liquidity structure of mortgage funds.
