Mortgage interest rates to trend upward
26/01/2012 
0 Comments
The Commonwealth Bank of Australia CEO gives his version of Banana-gate to signal mortgage rate increases.
Whether you believe that the banks are paying more for their money or not is irrelevant, Australia’s banks are gearing up to ramp up rates over and above any further RBA mortgage interest rate hikes.
The biggest reason for doing this is not the increasing cost of money, but rather the fact is that they can, and for a few unsettling reasons.
1. No competition. The non bank lenders are a shadow of their former size, and most of the big players have sold out to the banks or have moved out of the mortgage space in the hunt for bigger financial rewards.
2. Australia’s banks can afford to lose customers and still make more money. The big four banks have masterfully grabbed over ninety percent of the home loan business after the Global Financial crisis. If they raise their rates higher than the cash rate increases, that increase will be pure profit, so losing a few percent will be a calculated risk they would like to take.
3. Customers have almost no where to go. All banks will move in-line with the market leader, with maybe the exception of the NAB who seem to have a policy of winning back customers with lower mortgage interest rates, and that may be something that will slow the rate hikes of the other big banks.
4. Swings and round-a-bouts. Greens Leader Senator Bob Brown wants to get a bill through parliament on Community banking fairness.
So this latest CBA position is really in my view a way for the banks to build a platform to raise interest rates on home loans and possibly other credit products, to take back any losses of profitability that laws may take away revenue from a raft of fees and charges that now look threatened by this proposed legislation.
The fact is that the banks are now approaching 4%pa margin over the base cash rate and that is back to mid nineties profit levels. When you consider that the size of mortgages has tripled and banking staff have nearly halved,with technology doing more of the work, mortgages are a nice little earner for the banks and they want to keep it that way.
So will you let the big banks raise your mortgage rates over the cash rate?
Unless more Australian homeowners start to swap their mortgages, and the banks are forced to drop their mortgage handcuffs approach with claw back fees and deferred application and establishment fees to hold their victims to them when they want to leave, the the answer will be yes. Because the costs and work involved in moving loans as it now stands now will negate any savings in mortgage interest rates over the first year of the loan swap. This situation has to change.
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.
|
No comments yet... Be the first to leave a reply!