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RP Data Blog -- What's more important about interest rates?
Topic Started: 19 May 2012, 09:05 PM (1,130 Views)
Sherlock
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Link -- http://blog.rpdata.com/2012/05/whats-more-important-how-much-of-the-rbas-50-basis-point-cash-rate-cut-the-banks-have-passed-on-or-which-bank-actually-has-the-lowest-interest-rates/

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What’s more important…? How much of the RBA’s 50 basis point cash rate cut the banks have passed on or which bank actually has the lowest interest rates?

by Tim Lawless on May 18, 2012 in Interest rates

There has been a great deal of hype around how Australia’s banks are deviating from the historic norm of adjusting their mortgage rates in line with the Reserve Bank of Australia cash rate moves. Two weeks ago, when the RBA slashed the cash rate by 50 basis points and the Big 4 banks passed on only 37 basis points (on average), the public outcry went up a notch.

I can absolutely understand that there would be a reaction. Anyone with a mortgage is going to be very interested to know about changes to their cost of servicing that debt. What is a bit more difficult to understand are the attacks on the banks based on how much of the rate cut was (or wasn’t) passed on.

Take the example of the National Australia Bank as a case in point. NAB were heavily criticised for passing on only 32 basis points of the 50 basis point cut. What’s more important though is the fact that despite NAB providing the smallest portion of the rate cut amongst the Big 4, their standard variable mortgage rate remains the lowest at 6.99%. Sure, they passed on less of the rate cut in May but they were already providing loans at a more competitive variable rate which probably results in slimmer margins for them for the risk of lending money to an individual for a home loan.

The largest portion of the rate cut to be passed on by the Big 4 was CBA with a 40 basis point drop, bringing their standard variable rate down to 7.01%. Westpac passed on 37 basis points and are now offering a 7.09% standard variable rate and ANZ, the last of the majors to announce their variable rate, provided a 37 basis point cut which will result in a 7.05% variable rate.

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Looking at the recent housing finance data, variable rates are becoming less in favour; so consumers should be watching fixed mortgage rates as well.

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Based on the housing finance commitments data from ABS for March, the proportion of new housing finance commitments on fixed rate loans has been trending upwards since August last year. The proportion of new loans on a fixed rate in March was 14.9% which is the highest reading since April of 2008.

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Clearly it is important for consumers to be vigilant. Comparing interest rates across each of the banks can be difficult because of the different types of loan packages and products on offer as well as discounts that apply and so forth. At the very least it is worthwhile looking through the headlines to examine the actual applicable interest rates not just the extent to which the banks have moved their rates in response to the cash rate.
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TMR
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What fucks me off about the Big 4 banks is their hypocrisy in passing on rate increases in full within 15 minutes of the RBA lifting them, then when the RBA cuts rates, stating that the RBA isn't the biggest factor in their funding costs.

Still, they are there to make money, just a shame that they get to privatise their rewards and socialise their risk.
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NotFooled
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The Bear Whisperer

TMR
20 May 2012, 09:12 AM
What fucks me off about the Big 4 banks is their hypocrisy in passing on rate increases in full within 15 minutes of the RBA lifting them, then when the RBA cuts rates, stating that the RBA isn't the biggest factor in their funding costs.
If you don't like it, don't borrow. You're part of the problem if you do so no point bitching about the banks while simultaneously partaking of their service. It is your choice to borrow or not.
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TMR
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NotFooled
20 May 2012, 09:57 AM
If you don't like it, don't borrow. You're part of the problem if you do so no point bitching about the banks while simultaneously partaking of their service. It is your choice to borrow or not.
The only flaw with that logic is that I want to own my own property outright at some point, and don't have several hundred thousand $ lying around to buy it in cash. Still thanks for the advice.

:bye:
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NotFooled
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The Bear Whisperer

TMR
20 May 2012, 10:31 AM
The only flaw with that logic is that I want to own my own property outright at some point, and don't have several hundred thousand $ lying around to buy it in cash. Still thanks for the advice.

:bye:
I see, its due to your own greed and/or impatience. Got it.
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Elastic
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The problem is that up until recently the system has been rewarding leverage and punishing savers. So yeah you could save your money for ten years or so to buy a house but how has that worked out for those who chose that option through the noughties.
Only a rat can win a rat race.

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hoofarted
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Elastic
20 May 2012, 01:01 PM
... but how has that worked out for those who chose that option through the noughties.
Past performance is not an indication of future performance.
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TMR
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NotFooled
20 May 2012, 11:08 AM
I see, its due to your own greed and/or impatience. Got it.
Right... So by your logic, anyone who has to take out a mortgage to buy a house is greedy or impatient?
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labrynth
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TMR
20 May 2012, 06:35 PM
Right... So by your logic, anyone who has to take out a mortgage to buy a house is greedy or impatient?
I think he is referring to the peeps who take out 95%+ mortgages. I truly believe that the maximum leverage available for a residential mortgage should be 70%. Saving a 30% deposit will withdraw buyers from the market and force prices down. This will then stop the constant flow of money into property as we already have too much money in the asset class.
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TMR
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labrynth
20 May 2012, 09:15 PM
I think he is referring to the peeps who take out 95%+ mortgages. I truly believe that the maximum leverage available for a residential mortgage should be 70%. Saving a 30% deposit will withdraw buyers from the market and force prices down. This will then stop the constant flow of money into property as we already have too much money in the asset class.


Fair enough is that's the case - but there's absolutely no reference to anything about LVRs in his post. Not only that he managed to throw in a nice patronising comment for good measure.

My annoyance is the hypocrisy of the banks to cite a particular factor in their funding costs when it works to their advantage, yet then to dismiss the importance of it when it goes against them.
Edited by TMR, 20 May 2012, 10:34 PM.
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