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ISCOVER
Staff Reporter
The large gap between variable mortgage rates and the Reserve Bank’s cash rate is unlikely to shrink any time soon, new research suggests.
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RP Data said in its latest research blog that up until December 2007, the difference between variable mortgage rates and the Reserve Bank’s cash rate was 180 basis points, a gap which hardly changed between 1997 and the end of 2007.
“Since the onset of the GFC the only consistency between the variable mortgage rate and the cash rate has been a widening gap which reached a highpoint in May of this year at 330 basis points which is approaching double what the historic norm used to be,” RP Data said.
While RP Data acknowledged the rising cost of funding since the onset of the GFC, it said the higher reliance on domestic deposits was likely to intensify.
“Based on the March analysis from the RBA, more than 50 per cent of Australia’s bank funding now comes from domestic deposits while short term debt and long term debt markets both comprise about 20 per cent of funding originations,” RP Data said.
“The reliance of the banks on deposits is likely to be even greater by now, as the trend is clearly upwards and recent GDP data highlights that households continue to show a preference for saving around 9 per cent to 10 per cent of their income.”
“As Australia’s banks seek more funding from local sources and strive to become less reliant on overseas funding, the competition for deposits is likely to heat up. That means higher term deposit rates which translates to higher domestic funding costs for the banks.”
“Unless the banks are willing to see their margins shrink, I think we can expect higher deposit costs as well as overseas cost pressures to continue forcing the gap between the cash rate and mortgage rates further apart.”
