We’re a nation obsessed with interest rates, keeping a close eye on the Reserve Bank’s cash rate decisions and the reactions from lenders.
Rightly so, too. We have a higher rate of property ownership than lots of other countries (more than one third of Australians have a mortgage) and the proprietors of many of our 2.1 million businesses either use a home loan, business loan and/or credit cards to help support their capital needs. It’s an especially heavy load when you are at the beck and call of two or more of these funding lines.
So what’s happening at the moment with rates?
The vast majority of economists and market commentators expected a cash rate cut this month but that hasn’t eventuated. The Reserve Bank decided our economic growth was moving along at a healthy pace (significantly boosted by the resources sector), inflation was no cause for concern and interest rates were appropriately positioned at their long-term average. Hmmm…
A growing number of economists and commentators were saying prior to this month’s cash rate announcement that it was likely lenders won’t pass on 100% of a cut – to either business or home loan customers.
And now there are loud rumours of lenders moving their interest rates regardless of the Reserve’s decision to hold the cash rate steady.
The reasoning for this was and still is:
- The rising cost of long term wholesale funding that lenders source from overseas markets, which are fairly volatile and risk averse at the moment. Reports say the ‘Big Four’ banks need to raise approximately $100 billion this year;
- The rising cost of local funding, which is happening due to greater competition between lenders to attract deposits from Australian savers (ie. they’re paying us higher interest rates); and
- They’ve been advised that they need to raise a larger capital buffer for difficult times, to put it simply.
Deutsche Bank said recently, “Anecdotal evidence suggests banks are already re-pricing their business books, not only through higher lending rates but also via increased line fees.”
Great. Business loans already don’t receive the same ‘positive’ attention as home loans. The latest example of this occurred in December when one big bank neglected to echo the cash rate cut and reduce its rates for businesses.
So, keep your eye out for some lenders squeezing businesses by installing higher margins between the cash rate and their actual interest rates.
This lack of loving for Australian businesses is a huge shame, from each of our personal viewpoints as well as an economic and employment viewpoint. Did you know small businesses account for one third of our gross domestic product and employ around five million people here?
The most important thing you can do to help ensure you’re not being ripped off is to take action and shop around! There are close to 30 commercial lenders in this country, 100+ residential lenders and a ton of information sources focusing on loans – from experienced mortgage brokers through to financial services sections of newspapers, business owner forums and home loan comparison websites.
Make use of them and you could find yourself in a rosier financial situation.