Monday, September 25th 2017

Australian rate cuts and continued big 4 dominance


Monday, March 23rd, 2015
Opinion

 

When the RBA cut the official cash rate to 2.25 per cent in February, the RBA said it was "not because things had turned for the worse, but rather because of the lack of compelling signs that economic growth was picking up as was earlier expected." This cut is still likely to spur more housing growth in an overheated,   , however Imposing tougher lending rules on banks may slow, but not halt house price growth'' according to Reserve Bank deputy governor Dr Philip Lowe.

With the Big 4 banks who have a combined market share for home lending of 74% in 2014, the big banks continue to have headline rates that are attractive to prospective borrowers.

According to a survey by HashChing in first week of March 2015 showed that 34% Australians consider interest rate when choosing a home loan lender. In particular many choose brokers who provide a significant volume of clients to the big 4 banks.

What does a rate cut mean for you

The table below shows the average savings per month based on home loans over 30 years at 4.79%.

Loan amount

Current monthly

repayment

50 basis point cut(@4.29%)

Savings per month

Savings over the life of the loan

$300,000

$1,819

$89

$32,159

$400,000

$2,096

$119

$42,878

$500,000

$2,620

$149

$53,598

$600,000

$3,144

$179

$64,318

Time to Refinance?

The RBA cuts has brought Australian mortgage rates down to their lowest level since 1968. Rates continue to fall and consumers continue to miss out when rate cuts are not passed onto the consumers. For example variable rate mortgages may range from 4.5 per cent to 5.9 per cent, this 1.4 per cent difference, on a 350,000 loan over 30 years, was calculated to be worth over $300 per month. In Australia websites like Hashching.com.au for refinancing, and moneysmart.com.au, the ASIC financial guide  discuss the various different options available to consumers but there is a significant difference between the lowest and highest rates provided to consumers.

Barclays chief economist for Australia Kieran Davies indicates that Australia leads the global field with credit continuing to pile up and that 'we expect leverage to reach new highs over 2015 on the back of lower interest rates'. While borrowers in Australia should look at the various options to refinance at significantly reduced rates, NAB currently forecasts that RBA cash rates will fall in June to 2.00%.



Article by James Jones

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com



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