Increased pressure on the big banks to cut interest rates.

Wednesday 03 April 2013

Article by Mozo

The Housing Industry Association is calling on banks to introduce self initiated rate cuts on variable home loans, following yesterdays Reserve Bank decision to keep interest rates on hold at 3 per cent for April.

Pressure on Banks home loan money

Despite the 175 point rate reduction by the RBA since 2011, the average variable home loan rate has only come down by 140 basis points and even less in lending rates for small business, claims the HIA.

"The decision by the RBA to hold interest rates today (2 April, 2013) places even more pressure on banks to take the lead on this front," said HIA Senior Economist, Shane Garret.

There has been much discussion the last few months of the banks doing a first time ever, self initiated interest rate cut, with the main issue being the costs of fund raising for the banks and their room to pass on a rate cut.

"With the RBA's own research indicating a fall in the bank's wholesale lending costs over the past few months, the time for lenders to pass on the full RBA cuts is long overdue," said Mr Garret

However, head of Asia-Pacific research at TD Securities, Annette Beacher, the costs and competition amongst the banks for gaining household deposits is still intense.

"So there is actually very little scope for the banks to lower lending rates outside of RBA adjustments at present," according to Ms Beacher.

Whether the banks will give in to industry pressure is not yet clear, however for many homeowners, an interest rate cut could be as simple as doing a home loan comparison and switching to a better home loan deal.

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