Out-of-cycle rate hikes

Out-of-cycle rate hikes


There’s a very public stoush going on between the banks and the politicians about out-of-cycle rate rises.

While each side argues its case, consumers are left confused about whether they are getting a raw deal.

Since the RBA began cutting interest rates by 125 basis points from last November, there has been a shift in the tradition of lenders moving their rates in line with the RBA. Lenders have instead chosen in many cases to withhold part of each reduction and to make their rate announcements up to two weeks after the RBA’s first-Tuesday-of-the-month announcement.

We have lately fielded many questions from confused clients, asking  ‘who is driving rates’, ‘am I being ripped off’, ‘why are out-of-cycle rates rises happening’?

Here we’ll take a look at both sides of the argument and what it means for you as a mortgage holder.

The government argues …

The banks are protecting their profits at the expense of consumers. We’ve all heard Treasurer Wayne Swan’s very public criticism of the banks for moving out of cycle with the RBA. He has suggested they have a responsibility to match the RBA’s rate cuts and their ‘high returns’ give them the profitability to be able to do so.

The banks argue …

They have always been independent of the RBA when setting their interest rates and they are under no obligation to follow the Reserve Bank.

Their profit margins have been hurt by an increase in ‘funding costs’ (the amount of interest cost paid by a financial institution for the money they have acquired from various sources), largely as a result of Europe’s debt problem and they have a duty to shareholders to adjust rates based on these pressures.

The Australian Bankers Association has warned that lenders can’t follow the Reserve Bank’s cash rate moves without risking the stability of Australia’s financial system. “The risk is that if international investors become concerned that the banks in Australia are politically constrained from managing their higher costs, they will perceive us as riskier and they will reflect this in what they charge for the money we raise, adding further funding cost pressures on the banks, and ultimately, customers.”

We say…

If you feel unhappy with the rate movement your lender has made, give us a call to find out if there is a better alternative out there for you. When you come to us you can be sure we will help you find the best deal, answer your questions honestly and provide clear unbiased advice.