Reserve of Bank of Australia Lowers Rates But Will Lenders Follow Suit?
On Tuesday evening the Reserve of Bank of Australia reduced the interest rate by 25 basis points. Although not as badly affected by the economic events of 2008 onwards and the current fun and games in Europe, Australia is still a moderate player in the global economy and events around the world effect it accordingly. The RBA’s stance in lowering the rate reflects the challenging economic conditions in Australia and around the world.
The big question for mortgage holders in Australia will be whether the big four banks – Australia and New Zealand Banking Group Ltd, Commonwealth Bank of Australia, Westpac Banking Corp, National Australia Bank Ltd – follow the prompt and pass the decrease on to the customers. Treasurer Wayne Swan clearly feels this should be the case but so far there has been no movement from any of the four big lenders.
A similar decrease last month did lead to a decrease in the rates from all but National Australia Bank but this month has seen a downgrading in all the banks credit ratings from Standard & Poor, leading many commentators to speculate that a failure to pass on the rate decrease is an attempt to shore up their finances; the credit rating drop means credit required by the banks will cost more.
Unsold Australian property
Short of some sort of legislation, it’s hard to see what Swan can do to persuade the banks to pass on rates decreases to their borrowers – it’s economically important for the customers and politically important for Swan; 90% of mortgages are variable rate and the big four banks control 80% of the entire mortgage market.
Swan made the point that Australian banks are among “….the most profitable banks in the world” but his only advice to customers was to swap their accounts if they weren’t happy with the behaviour of the lenders. We’re not the first website to pass negative comment on the disproportionate power of Australian banks and for sure we won’t be the last.
Australian Mortgage Applications Up
In contrast to the above story, in November the Australian Finance Group recorded an 18.4% increase in mortgage applications countrywide. AFG is the countries largest lender and a good indicator of underlying financial trends.
The two stories here may seem to contradict each other in certain ways but the AFG’ figures are pretty clear that the increase is due to November’s rate decrease which, as stated above, was passed on to three out of four of the big banks. It also comes on the back of a consistent slowing down of the mortgage market for various reasons including unaffordable products for first time buyers and high property prices in general, something that is deterring potential buyers in economically uncertain times.
The current economic climate means that many property owners have found themselves in desperate financial straights and the Australian Bankers Association have responded by setting up a website – www.doingittough.info – to provide customers with some handy advice if they feel they are slipping into debt.
