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Warnings that the major banks may not pass on future rate cuts in full have been met with criticism from all quarters including the broking industry.
Last week both CBA and NAB indicated that due to the rising cost of funds borrowers may not receive the full amount of any cut to the official RBA cash rate.
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The majority of the 502 respondents to the latest weekly Mortgage Business straw poll – 85 per cent – said the banks should pass on all of any future cuts.
Only 12.5 per cent disagreed while 2.5 per cent were unsure.
According to Steve Weston, Challenger general manager of distribution, broker platforms and lending, the cost of wholesale funds – which account for around half of the majors’ funding – has risen substantially and is now more than 1.5 per cent higher than it was 18 months ago.
“Banks also obtain a good deal of their funding from retail deposits which, while less expensive than wholesale funds, have increased steeply over the past 12 months,” Mr Weston told Mortgage Business.
Mr Weston said bank margins on home loans were now only around just 0.75 per cent which compared to margins in excess of 2 per cent on business loans, credit cards and personal loans.
“Banks are writing loans at less than the cost of wholesale funds and this is not sustainable.
“Given that home loans account for close to half of the major banks’ lending, in the medium term they will need to increase the pricing on their mortgages,” Mr Weston said.
Gerald Foley, managing director of National Mortgage Brokers, said that while it was important that borrowers see the lowest possible rates, from a broker perspective it was essential that bank lending remained profitable.
“I can’t see any justification for the banks to make further changes to commissions but if they are looking to increase margins it would be preferable to see that on home loan rates rather than commissions,” he said.
While brokers may be disappointed that home loan rates might have little room left to move they should take heart that 40 year low interest rates are bound to stimulate borrowing activity regardless of 25 basis points here or there.
“Right now the fundamentals are strong for the property market under the $500,000 mark to do very well,” Mr Weston said.
“Rental costs will soon be equivalent to servicing a mortgage and for investors, with term deposits low and the share market shaky, property, soon to be offering positive gearing, will be very attractive.”
Mr Foley agreed; “The first home buyer market is starting to come alive and there are plenty of people sitting back on their cash waiting to make their move.”
