August 05, 2016
Given that inflation has been sitting at historical lows, employment has continued to soften and the Australian dollar remains stubbornly high, it was no surprise to see the Reserve Bank of Australia cut the cash rate to the new low of 1.5%.
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.
It would be very easy to let this partial rate cut pass under a veil of rhetoric around the cost of wholesale funds, and requirements to hold increased amounts of capital against mortgages.
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.
Knowing this, we as a country should champion more of our lenders to act in the interests of their customers.
If you are unhappy with your lender’s reaction to the recent rate cut, give me a call. With access to hundreds of home loans from over 20 lenders, we can help you find a loan that is suited to your individual financial circumstances.