is retained on the book of the issuer, or sold at a higher cost to another investor, reducing the return from the deal. ( however, this effect on overall profitability is much smaller than the increase in spreads since the crisis. ) the cost of long - term and short - term wholesale funding has also decreased since mid 2009, though the cost of deposits remains high. consistent with this, the smaller lenders ’ market shares have risen slightly over recent months, though they are unlikely to return to pre - crisis levels any time soon. the pre - crisis level of rmbs activity, which these institutions relied more heavily on, was supported by demand from offshore sivs which is no longer there. but as the major banks have increased their lending rates to recoup increased funding costs, and as funding costs for securitisation have fallen, the smaller participants have become increasingly more competitive. while interest rates on mortgages have increased relative to the cash rate, the reserve bank is able to take account of those changes in its policy deliberations. the cash rate determined by the reserve bank is still the major determinant of the interest rate structure in australia, including that of mortgage rates. with the securitisation market showing greater vitality in recent months, the housing loan market remains contestable. any widening in margins is likely to attract new competitors into the market. already, the improvement in securitisation has encouraged some of the smaller lenders back into the market and encouraged some brokers to again look to increase their own mortgage lending. with these developments, the provision of mortgage credit in australia is likely to continue to be adequate in a competitive marketplace.

portfolio of mortgages meant that the foreign - owned banks were able to advertise lower interest rates without adversely affecting the profitability of a large stock of loans to existing customers. second, the wider acceptance on the part of customers of applying for loans over the internet and the use of the broker network has increased the ability of these banks to reach new borrowers without establishing a costly branch network. 4 during late 2008 and 2009 however, the foreign banks ’ market share fell significantly, in large part because of the reduction in lending by bank - west. graph 4 more generally, the emergence of mortgage brokers, who act as intermediaries between lenders and borrowers and make it easier for borrowers to compare the costs and features of different loans, has contributed to the increase in competition between lenders in the australian mortgage market. mortgage brokers ’ share of total mortgage settlements is about one - third of all loans. see rba ( 2007 ), “ box c : foreign - owned banks in australia ”, financial stability review, march, pp 47 – 49. product innovation through the late 1990s and first half of the 2000s, there was considerable product innovation in the australian mortgage market. lenders sought to cater for a wider range of potential borrowers and found new ways to assess their borrowing capacity. some of this innovation has resulted in an easing in lending standards and an increase in risk for both borrowers and lenders, but its overwhelming effect has been to widen the range of households who can access finance. 5 moreover, when the lending was more risky, lenders charged a larger spread on these loans to take account of the greater risk and required lower loan to valuation ratios ( lvrs ) for these loans. lenders introduced home - equity loans, redraw facilities and reverse mortgages, all of which allowed households to borrow against the equity they have built up in their homes. lenders also introduced interest - only loans and shared - equity loans, which made it easier for households, particularly first home buyers, to purchase their home. loan products that better meet the needs of certain types of borrowers, such as those with irregular income streams or those who do not meet the standard lending criteria, were also introduced. low - doc loans, for which borrowers self - certify their income in the application process, accounted for about 10 per cent of newly approved housing loans in 2006, compared with less than ½ per cent in 2000 ( table 1 ). there was