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Banks' hold on rates won't slow market

by Staff Reporter11 minute read
The Adviser

The RBA moved to reduce the cash rate by 25 basis points yesterday to a 49 year low of 3 per cent but funding pressures may see little of the reduction passed on to borrowers.

Yesterday CBA passed on 10 of the 25 basis points to its customers while NAB said there was no room to move.

“Whilst customer interest rates have been falling, the actual cost of banks providing a mortgage has increased significantly since the credit crisis hit in mid-2007.

“Our pricing needs to responsibly reflect these increased funding costs,” NAB group executive of personal banking Lisa Gray said.

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Brendan O’Donnell, Choice Aggregation Services CEO, said it was important the banks reacted responsibly to the latest rate cut and urged brokers to keep in mind that in many cases banks have been writing loans unprofitably due to the high cost of funds.

“Yesterday’s rate cut may allow them to claw back some of that margin, which in turn will help alleviate pressure on the availability of credit,” Mr O’Donnell told Mortgage Business.

Mr O’Donnell said borrower activity would continue to remain solid regardless of whether the latest 25 basis points were passed on.

“Borrowers have seen the vast bulk of the 4.25 per cent (in rate cuts since September 08) so far handed back and as a result we have certainly seen a positive impact on activity.

“With government stimulus we’ve already witnessed a major boost in first home owner business and with market conditions as they are – an undersupply of property, good yields and ongoing low interest rates – investors are also set to make a return,” he said.

Mr O’Donnell said however that it was important that brokers are prudent in the advice they offer clients.

“Although we’re in a downward rate cycle, make sure that the advice you’re giving now takes into account future rate hikes – because rates will rise again in the future.”

The Commonwealth Bank’s standard variable rate will now sit at 5.64 per cent, effective April 17; NAB’s will remain at 5.74 per cent.

ANZ, Westpac and St George have yet to announce their moves but Westpac head Gail Kelly has already warned the bank would be unable to continue passing on rate reductions in their entirety.

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