THE RESERVE BANK AGAIN DROPPED ITS BENCHMARK INTEREST RATES, AFTER PAUSING IN MARCH, AS IT BATTLES THE GLOBAL SLOWDOWN…
The central bank cut the key rate by 25 basis points (0.25%) to 3%, the lowest level since March 1960. The RBA has now chopped 425 basis points since last September.
The banks have only passed on at best a 10 basis points (0.10%) cut to their customers. Lenders claim the rising cost of funds on international markets prevents them from passing on the full RBA cut.
In Australia the major banks borrow 40% to 60% of the funds they lend to customers from the market. Much of these funds need to be found on the international market.
As a result of the toxic debt created in USA mortgage funding vehicles and the resulting shock waves, which spread around the globe, investors have been cautious in advancing funds to the mortgage sector at all.
Limited funds and a constantly rising price as investors look to cover any perceived risk are contemporary characteristics of international markets.
This obviously drives cost of funds up.
Australian banks are better off than most as they are able to ‘borrow’ the Federal Governments AAA rating (via the deposit guarantee) to source funds. However, we are very dependent on these funds. Our low savings ratio means we don’t generate anywhere near enough funds to cover the level of borrowing we need to grow our economy.
The consensus is the RBA rate will bottom out at 2.5% in the third quarter of this year. The banks have flagged they will not be in a position to pass on all of this due to continued pressure on international funding markets.
It would appear that variable rates are close to as low as they will go, although they are expected to remain historically low for some extended period.
If you wish to plan your interest rate strategy going forward please, or you will be looking for new loans in the short to medium term please contact out mortgage team on 02 9449 2333, or at loans@planassist.com.au Loans require more planning than in the past and the process is much more pedantic. We may need to put a strategic plan in place well before you borrow.
