Westpac’s axing from first-home loan scheme an added indignity

Westpac will be ruled out as a major bank lender for the Morrison government’s first-home loan deposit scheme.

Westpac insiders understand the embattled financial institution would be excluded from the first home-loan scheme, which starts on January 1. Picture: David Geraghty

Westpac will be ruled out as a major bank lender for the ­Morrison government’s first-home loan deposit scheme over reputational risk concerns.

The Australian understands the big four banks lodged appli­cations to join the government’s panel of lenders, competing for two spots alongside approved non-major bank lenders.

On Tuesday, the National Australia Bank was granted final approval by the National Housing Finance and Investment Corporation to support the scheme, with a decision on the second major bank expected to be made by the end of the year.

Westpac insiders told The Australian it had expected to be approved as the second major ­lender but now understood the embattled financial institution would be excluded from the scheme, which starts on January 1.

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The Australian has confirmed Westpac’s bid was one of the two best applications reviewed by NHFIC under strict criteria including competitiveness of home-loan offerings, geographic reach and readiness to meet scheme implem­entation timelines.

According to NHFIC’s request for proposal, which closed submission­s for the major banks on November 6, another key evaluation criteria included “the reputation of the respondent”.

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Applicants were asked to provide details of “any regulatory matter or any other matter” that may have a “material adverse effect on the reputation of your organisation”. This included any claims, litigation, threatened litigation, investigations or adverse findings.

There was also a warning on communications and marketing, instructing lenders to use their “best endeavours to enhance the reputation of both parties in relation­ to their respective roles under the scheme and ensure the status, integrity and reputation of the parties and the scheme are maintained”.

The criteria was established after consultation by NHFIC with a broad range of financial institutions, brokers and peak bodies.

Under investment mandate rules, the two major banks appoint­ed to the panel of lenders would be eligible to receive up to half of the 10,000 guarantees alloc­ated per financial year.

The Australian understands the Commonwealth Bank and ANZ would now be considered for the final spot. A group of smaller lenders will be revealed next month ahead of the scheme being activated. The scheme, one of Scott Morrison’s key pledges at the May 18 election, provides a guarantee allowing eligible first-home buyers on low and middle incomes to buy a home with a depos­it of as little as 5 per cent.

Westpac sources told The Australian­ the bank had been told it would be one of the two major lenders selected after entering contract negotiations, which were understood to have been in the final stages.

A Westpac spokeswoman said because the government housing stimulus package was “external” the bank could not comment.

She rejected internal claims that the bank was intending to use the scheme to target younger customers with other products, ­including those who weren’t elig­ible. “This information is not correct at all,” the spokeswoman said.

NHFIC approved NAB’s applic­ation this week, after the Westpac scandal erupted, following the bank’s commitment to not charge eligible customers higher interest rates and pledge to offer guarantees.