Windfall for home­own­ers

Port Douglas & Mossman Gazette - - FRONT PAGE - Steven McMa­hon

HOME OWN­ERS can ex­pect a po­ten­tial $1200 windfall over the next two years as the big banks hand back some of their out of cy­cle rate rises, one of the na­tions’ lead­ing econ­o­mists says.

The cuts are tipped to spark a fierce bat­tle for con­trol of the lu­cra­tive $1.17 tril­lion mort­gage mar­ket as the big banks aim to steal mar­ket share from ri­val op­er­a­tors.

Na­tional Aus­tralia Bank’s Breakup cam­paign launched on Valen­tine’s Day 2011, backed up by an in­creas­ingly ag­gres­sive pric­ing cam­paign, re­sulted in the big play­ers go­ing toe-to-toe on price for a few months.

This comes as a new re­port calls for the scrap­ping of stamp duty and a wind­ing back of neg­a­tive gear­ing to make hous­ing more af­ford­able.

Deloitte Ac­cess Eco­nomic part­ner Chris Richard­son is tip­ping of­fi­cial in­ter­est rates will stay on hold but the banks will cut mort­gage rates by 0.5 per cent in­de­pen­dently of the Re­serve Bank - de­liv­er­ing a po­ten­tial sav­ing of around $100 a month for the av­er­age house­hold.

Af­ter re­fus­ing to pass on all of the cen­tral bank’s rate cuts over the past two years, the big banks are un­der in­creased pres­sure to hand some of those gains back.

Since the RBA started cut­ting in­ter­est rates in Novem­ber 2011 the gap be­tween the stan­dard vari­able rate be­ing of­fered by the Big Four Banks and the of­fi­cial cash rate has blown out to its high­est level in a decade.

Mak­ing home loans a ma­jor profit cen­tre of banks’ busi­ness mod­els.

"Mar­ket forces should re­sult in the big banks off their own bat trim­ming half a per­cent­age point off the stan­dards vari­able rate over the next 12 months," Mr Richard­son said.

"The RBA will be happy to see mort­gage rates drift down as it will be good for the econ­omy with the in­crease in house­hold spend­ing power."

The big four banks, which are on track to make a com­bined profit of al­most $26 bil­lion this year, cur­rently con­trol al­most 85 per cent of the $1.17 tril­lion home loan mar­ket.

Re­search from the Aus­tralian In­sti­tute es­ti­mates the ma­jor banks pock­eted an ad­di­tional $3.7 bil­lion in prof­its last year as a di­rect re­sult of re­fus­ing to pass on in full the falls in of­fi­cial in­ter­est rates.

The banks are es­ti­mated to make an an­nual profit of about $2640 on the av­er­age $300,000 mort­gage, rep­re­sent­ing a profit of $79,200 over the life­time of a 30-year mort­gage.

Most econ­o­mists ex­pect the RBA will leave in­ter­est rates on hold at 2.5 per cent for the rest of the year and at present the fu­tures mar­ket is giv­ing a less than a 30 per cent chance of another rate cut in this cy­cle.

But West­pac chief econ­o­mist Bill Evans is tip­ping of­fi­cial in­ter­est rates could fall to a low of 2 per cent by mid-next year as the Aus­tralian dol­lar re­mains above US90c on the back of a weak US econ­omy.

Fe­bru­ary and May 2014 are the most likely times for the next RBA rate cuts, Mr Evans said. Since Novem­ber 2011, the RBA has low­ered the cash rate by 2.25 per­cent­age points to 2.5 per cent. But over the same pe­riod, on av­er­age, the Big Four dropped their mort­gage rates by only 1.87 per cent to a stan­dard vari­able rate of 5.91 per cent. A cut of 0.25 per cent to the SVR de­liv­ers an al­most $45 cut to the av­er­age monthly re­pay­ment on a $300,000 home loan.

The banks and its lobby group the Aus­tralian Bankers’ As­so­ci­a­tion are un­able to com­ment on rate moves due to price sig­nalling reg­u­la­tions.

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