First the Reserve Bank of Australia decided to leave the cash rate on hold, then the four major Australian banks increased their interest rates out of cycle with the RBA and the following week posted their profit for the quarter, which is up 7% for CBA and NAB. In these ever changing times many are concerned about how this will affect the lending market.
Leaving the cash rate on hold and the out of cycle interest rate hike has drawn the ire of journalists, politicians and customers alike and of course created more uncertainty in an already jittery property market. It is only when you look at the underlying issues; higher funding costs, slowing global growth and an escalation in the European sovereign debt crisis leading to high market volatility; that the true picture emerges.
The PR fallout alone shows that increasing interest rates out of cycle is a decision that the banks have not taken lightly. Furthermore while many criticise the banks for announcing billion dollar profits, banks need cash buffers in order to be able to loan money in the first place. If they didn’t raise rates and the cost of borrowing (internationally) continued to increase, the banks might find themselves in a position of not being able to lend in the future. This would make things a lot worse for borrowers and the property market in general.
Against the backdrop of economic uncertainty and with mortgage lending figures falling to 1977 levels, there are still glimmers of hope in the lending market, particularly in refinancing.
It seems that many home owners are still not rushing out to refinance on a better deal. There could be many reasons for this. Successful mortgage brokers are demystifying the perceived complexity and cost of refinancing for clients, while at the same time adding greater value to clients, by providing them with free market appraisals, auto valuation (AVM) reports, suburb reports and regularly following-up. Clients appreciate this level of service (especially if they are not getting it from other providers) and as a result are more likely to stay loyal when the good times return.