It was no surprise to see the Reserve Bank of Australia cut the cash rate to the new low of 1.5% with inflation at historical lows, with employment softening and the Australian dollar remaining stubbornly high.
But while the cash rate cut wasn’t surprising, it was surprising to see so many of Australia’s lenders failing to pass on the full rate reduction.
At a time when the economy could do with the lift that a cut to the cash rate would provide, it was deeply disappointing to hear some of the nation’s largest and most profitable lending institutions announce that only 10 or 13 of the 25 basis point reduction would be passed on to their mortgage customers.
The excuse that you might have heard is that the cost of funds have increased or something similar.
The reality is however, if all lending institutions chose an equally profit focused approach and held back this proportion of the 25 basis point cut, then this equates to something like $2 billion dollars taken out of the pockets of Australian mortgage holders and placed onto the bottom line of institutions that are already generating tens of billions of dollars in profits every year.
It is also disappointing to see that whilst some lenders are quick in announcing these partial rate reductions, it takes them a little longer to implement these cuts at all - it can sometimes be weeks and/or months.
There is no reason why a lending institution cannot pass on rate reductions to their customers as soon as they are announced. By choosing to delay their approved rate cuts, these lenders are further adding to their swelling bottom lines at the expense of their customers.
And while lenders take weeks to pass on any rate cuts to their home loan customers, it would be interesting to see how long it takes for the same institutions to reduce the amount of interest they will pay on savings and transaction accounts.
There is still a high degree of market volatility. Unemployment has edged slightly higher over the last month, consumer confidence is down, and housing affordability remains a critical issue for many.
To not pass on the full rate cut is flying in the face of the RBA’s decision and it will be an interesting time indeed at next month’s board meeting.
If your lender is only passing on a small rate cut, give Jason Coviello a call to compare your options and make sure you’re not paying too much on your current loan.
If you want to book an appointment or are just interested in having a chat, feel free to either call Jason Coviello on 0438 211 745, or send through any questions via email to email@example.com
If you’d rather be social about it, feel free to head across to myFacebook Page and see if there’s already an answer to your question or pm me.
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