The RBA has just made the decision to keep the cash rate on hold again – it’s the 8th consecutive month the RBA will hold the cash rate at 2%.
So why did the banks raise rates anyway?
The major banks and smaller lenders raised interest rates by 15 to 20 basis points – they say the Australian Prudential Regulation Authority directed them to hold more capital meaning the cost of doing business became more expensive.
But is the rate increase justified?
Some economists agree the move to lift rates was reasonably justified. The other option was to cut dividends which is unpopular option with the banks’ shareholders.
Kevin Davis who is Professor of Finance at University of Melbourne found it difficult to balance the rate increase with the extra amount of capital they were being required to hold.
“In my view, it’s hard to get the increase of 15 to 20 basis points that they increased their mortgage rates by last month from the increase in capital required,” he said.
Will the banks lift rates again next year?
Some economists think there is a distinct possibility mortgage holders will be hit again next year.
“I wouldn’t be surprised if one quiet Friday afternoon when the cricket’s on, they announce a 10 or 12 or 15 point jump in their mortgage rate,” said Stephen Koukoulas from Market Economics
Alex Joiner is Chief Economist at Merrill Lynch said he expected rates to remain on hold into next year, making it much more difficult for the banks to pass on an out-of-cycle increase in mortgage rates. “Because, appearance wise, they seem to have done enough so far to cover their cost of capital,” Mr Joiner said.
See the SMH article here: Do the banks even care?
So what can householders do?
“A customer refinanced their home loan in June, switching away from their current Bank and saving about $300 a month. The extra money helped ease the burden of paying for their three young children’s extracurricular activities, including sports and dancing.” SMH Nov 15
The first thing is householders need to beat the “can’t-be-bothered” attitude.
This “can’t-be-bothered” attitude could potentially cost Australian mortgage holders $9.9 billion.
It’s hard to believe nearly 40% of mortgage holders have not switched lenders in the past decade in search of cheaper rates.
Despite the chance of big savings, a survey of more than 1,300 Australians found only 6% were considering switching lenders and only 20% had switched for a better deal in the past half decade.
Among those who have not switched, 24% admitted they could not be bothered with the paperwork, 13% said they thought it would cost too much, and 9% said it was too hard to compare.
See the SMH article here: Customers urged to switch