Login
ISCOVER
Borrowers should be wary of “abnormally low” interest rates that may follow the European Central Bank's decision to push interest rates into negative territory.
FBAA chief executive Peter White said lower rates would encourage people to over-commit without taking future rate rises into consideration.
To continue reading the rest of this article, please log in.
Looking for more benefits? Become a Premium Member.
Create free account to get unlimited news articles and more!
Looking for more benefits? Become a Premium Member.
Mr White said rates that are too low can only go in one direction – and that any subsequent correction could be quite large to compensate for the extreme low.
“This will not only remove any advantage borrowers had but could have the reverse effect and result in people losing their homes due to a failure to meet increased payments,” he said.
Mr White said it would be in the public’s interest for banks to absorb any unusually low cost of funds, just as it would often be best for banks to absorb increases when they occur.
“Borrowers thrive when interest rates are more constant. Any drop on the cost of funds simply won't last. It can't,” he said.
Meanwhile, AMP Capital chief economist Shane Oliver has told The Adviser’s sister title, Mortgage Business, that Australian banks would probably find a way to take advantage of Europe’s negative interest rates.
At the peak of the eurozone crisis in 2011/2012, global funding costs spiked and local lenders split with the Reserve Bank of Australia’s official cash rate movements.
“Australian banks were actually raising their mortgage rates ahead of the RBA and then when the RBA began cutting, the banks didn’t cut their rates as much,” Mr Oliver said.
“Now we are seeing a reverse of that, and it could potentially mean lower mortgage rates for Australian borrowers over time,” he said.
[Related: FBAA warns mentors to stop “ripping off” new brokers]
