Have home loan interest rates hit rock bottom, or is there more to go?
25/03/2012 
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I don’t know how you feel, but when it comes to home mortgage interest rates and Australia’s banks I’ve had a gutful.
Some in the banking and mortgage industries are saying that interest rates have “reached the bottom” of the “current interest rate cycle” [whatever that is] which they claim is limiting the chance of further rate cuts.
IMHO there is no such thing as an “interest rate cycle”. Its just a term that is “invented by bank PR spin specialists” to make it sound logical when interest rates go up [or down] as the case might be.
On the basis that a “cycle” suggests a circular motion like the earth circling the sun, it would mean that interest rates “do a loop” and return to their starting point at some time.
On the basis that mortgage interest rates are currently their lowest ever recorded, this does not make any sense, and that whether they go up or down is not pre-ordained by the laws of the Universe, but depends how the Reserve Bank of Australia reads Australia’s inflation, trade and employment prospects into the near future; something that would be very hard to predict.
‘The market is beginning to expect rates to go up’ is another load of tripe that is doing the rounds with the only obvious purpose to soften up home mortgagors for more home loan pain caused by mortgage margin creep. The ‘Market’ in my view means real estate agents first home buyers, second and subsequent home buyers, homeowners with an existing mortgages, residential real estate investors, sharemarket investors, and businesses with a business loan secured against their home one the one side, and the Banks and non bank mortgage lenders, mortgage franchisors and franchisees, and mortgage brokers on the other.
I haven’t met too many people with a mortgage, or scared about losing their jobs, or people that have lost theirs and can’t find another one, saying that mortgages are going to rise soon.
All I have seen is one article about one bank’s CEO say this, without any facts to substantiate the statement. If these people are talking to each other, isn’t this collusion? What is the purpose of this kind of talk?
Is to scare people from getting a mortgage at all, or to sell their homes for less than they could by waiting, or to talk up the market, or to snatch more profits for themselves when the rates go down again, and then tell you that “We told you rates were at the bottom, so don’t expect us to pass on the rate decrease.”
But rather than raise interest rates the Reserve Bank of Australia this month left the official cash interest rate unchanged at a 45 year low of three per cent, all on the basis of surprisingly good news on retail spending, exports and a mining boom on the back of China’s resilience.
In my view interest rates should be retailing at under 5 per cent per annum, giving the Banks a Margin of a little under 2 percent per annum to operate. There is just not enough price competition in Australia, as borrowers are picked off one at a time.
The RBA however has left the door open for more cuts in official rates, if it believed they are needed to support jobs growth and the Australian economy.
And Kevin Rudd, Australia’ s Prime Minister says we are not “out of the [financial] woods yet.”
The fact is that the banks are not the home loan market, or the housing market; they represent a minor part of it, but they have an unfair amount of power, and have used that power in my view to profiteer on the back of the mortgage belt, at a time when other businesses were suffering.
Isn’t it about time that someone changed to the game, and put more leverage in the hands of home buyers and home owners with mortgages to pay, and less power in the hands of greedy bankers.
Don’t allow your bank to milk your hard earned after tax dollars through your mortgage home loan cash cow.
Rick Adlam has been helping clients with home loan finance since 1985 when he was home consultant with AV Jennings. Rick started Equity Home Loans in 1996 to help homeowners become property investors. Rick currently consults in the development of Mr Mortgage for mortgage brokers and HomeMate for new home buyers.
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