The third decade of this century we are living will herald some of the most massive changes in living memory. In a post-Royal Commission/interest rate cut world, this could mean a power shift from banks to borrowers.
What’s driving this change?
In the fall-out of the interest rate cuts of 2019, when the RBA’s rate plummeted to 0.75 percent, the major four banks did not necessarily pass the full cuts to their customers. This drove many people to seek home loans from smaller lenders, who were willing to adhere to the reduced rate. The Australian Financial Review even described the size of this gap as;
“The difference between rates offered by the big four banks and non-ADIs (authorised deposit-taking institutions) for owner-occupier, interest-only loans has blown out to more than 90 basis points, as the majors continue a pullback from riskier lending.”
This small act of exercising consumer choice is now having further effects, with the RBA considering investigating the banks for passing on average 60 basis point cuts, not the full 75 basis point cuts, to their customers.
The threat of this investigation has spurred the banks to increase their cuts from 60 to 65, with the expectation of increasing to 70 basis points cut from their cash rates in the coming months.
So what effect will I see?
A 75-basis-point cut would be worth more than $2100 in lower repayments for average ($400,000 mortgage) homeowners. All won with the power of consumers exercising their choice. Buyers can still take out loans, and this will get easier as rates go lower. The AFR commented on this as well, saying,
“More non-ADIs are also being recruited onto the lending panels for the major mortgage broker networks because of increased borrower demand for cheaper rates and discounts.”
A brave new world indeed.
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