Could Australia's big banks offer very long-term mortgages — in the ballpark of 20 to 30 years?

The question was raised in a House of Representatives Standing Committee on Economics hearing this week.

During the hearing, National Australia Bank CEO Andrew Irvine provided evidence on the popularity of variable-rate mortgages with offset accounts. 

An offset account is a savings account for mortgage borrowers.

The account's balance is offset against the amount you owe on your home loan, leading to reduced interest payments.

But Labor MP Tania Lawrence argued the accounts were only popular because other types of loans, which might be more popular, were not available.

"Because I often do hear the response being … 'We don't have more options around long-term 10-year to 15-, 20- to 35-year options for mortgage-length terms … because consumers want or like having the variability of the interest rate,'" she said.

"But if it was offered when the interest rates were at 2 per cent, you don't think people would have opted to take a 10, 15, 25-year contract term?"

Mr Irvine responded that the issue centred around how Australian banks paid for, or funded, mortgages.

"It is predominantly through customer deposits," he told Ms Lawrence.

He said 80 per cent of NAB's loan book was funded by customer deposits.

"And the vast majority of those customer deposits are not in terms deposits, they're in what we call at-call deposits," he said.

"And so what that means is, structurally, banks are unable to have long-duration loans because you would have a mismatch against your deposits."

"That's when you have bank failures.

"It's when there's a mismatch between the duration of their assets and liabilities."

He explained that money sat in deposits on average for about two to three years.

This is why the bank offers fixed mortgages for two to three years.

So, what if the big banks could reliably access funds for 20 to 30 years?

The NAB boss chose to "hypothesise" what that would look like.

"If we, say, partnered with superannuation, and superannuation said, 'OK, Mr Irvine, I'm happy to do $10 billion or $20 billion of origination through NAB that you can place me.'

"And the reason they might want to do that," Mr Irvine added, is "because unlike a bank where our liabilities to depositors are short term — because someone can go into a bank and take their money whenever they want — [whereas] with superannuation, that money is there for 10, 20, 30, 40, 50 years because it's there to fund retirement".

"So it makes sense for these long-term providers of capital to potentially work with us in the system to provide long-term mortgage instruments.

"And ultimately that's what the US has been able to do."

United States lenders draw on annuities in the insurance sector rather than capital in the superannuation or pension funds sector.

Ms Lawrence enthusiastically responded to Mr Irvine's comments, saying: "I think particularly to explore the superannuation funds to support the delivery of affordable homes, I think this is a potential real vehicle to meet that demand we have on housing that's affordable as well, without putting the banks at risk."

"I think there are a lot of wins with that," she said.

The ABC asked the superannuation industry if it was interested in the idea.

It did not say no.

"We recognise that banks are exploring innovative ways to offer long-term fixed-rate mortgages, which could provide more options for consumers," Association of Superannuation Funds of Australia (ASFA) CEO Mary Delahunty said.

"If these products were developed and the interest rates offered to superannuation funds were attractive, exceeding, for example, the returns on Australian government bonds of similar maturity, funds might consider them as part of their investment strategy.

"Each fund would need to carefully assess whether such an investment aligns with its overall strategy and serves the best interests of its members."

She also noted that the superannuation industry was already an activity supplier of finance to companies that supplied housing.

"Superannuation can play a role in increasing the supply of homes by investing in supply-side initiatives where the opportunities present an appropriate risk-adjusted return," Ms Delahunty said.

But is this proposed new mortgage funding system too risky for the banks, and would it actually be cheaper for mortgage borrowers?

Fund manager Roger Montgomery has concerns.

"When banks provide fixed-rate funds for 20 or 30 years, they are exposed to the short-term vagaries of markets," Mr Montgomery said.

"In other words, they can lose money in the short term providing a low fixed-rate loan for a very long period of time.

"If funding costs go up, they start losing money."

Mr Montgomery suggested the fixed-interest rate paid by the mortgage borrower would be lower than the interest rate, fee or payment the bank was paying the superannuation fund.

"That makes banks less stable in the US, or less secure, than our banking system in Australia, and for that reason we don't provide — or the banks don't want to risk losing money so we don't provide — those 20- and 30-year mortgages."

However, he conceded it "would be great from the consumer's perspective".

But could the banks charge more interest on these loans to cover themselves from any financial risk?

Mr Montgomery said yes, but the interest rate would be exorbitant.

"It would have to take into account all the possibilities during the term of that mortgage," he said.

Still, it seems the thought seed has been planted in the mind of one of the country's most powerful bankers and a federal member of parliament has given him a nudge to try it.

"I do hope that you'll lead the way to open up those conversations with the super funds," Ms Lawrence said.

"It would be fantastic to see."

Mr Irvine simply replied: "Thank you, Ms Lawrence."