I am not sure if you were ever a fan of the X Files where Scully and Mulder would try to solve the most unsolvable worlds mystery’s and conspiracy theory’s that they came up against. Well they should also make an “X” file about how interest rates are determined in this country!
In my December newsletter I had mentioned that you never know whats around the corner! What we have seen over the past 4 – 6 weeks is across the board interest rates rises of between 0.05% and 0.15% particularly with investment loans, although home loan products were also impacted.
The official line is the “Trump Effect” where market confidence has been strengthened by his election win and the US raising their official interest rates, creating a re-pricing in wholesale funding which the lenders obtain to fund their mortgage products.
My own view is one of cynicism, given that there is a view by local economists that rates are likely to stay flat or reduce, with a 50% chance of another interest rate cut by the Reserve Bank in the next 12 months. Whilst wholesale funding does impact on interest rates, more likely fixed rates, variable rates are based on the RBA’s cash rate, the interest rate that we focus on when they announce rate cuts on the first Tuesday of every month.
So my view is that lenders are raising rates before the RBA makes an announcement to reduce rates, and when this occurs the lenders will then pass on the full reduction. This will neutralise the impact on profitability and allow them to escape the wrath of government and the local media. It also allows the banks to peg back some profitability gains before the next season of reporting over the coming 2 or 3 months.
Now, I might be wrong on this, although my 30+ years of industry experience tells me differently. The only way you are going to beat the banks is to engage with finance brokers, such as ourselves, to win back all that hard earned cash you payout in your mortgage repayments every month.
Our experienced team of finance brokers are here to assist, whether you have business dealings in Sydney, Melbourne or Brisbane, the South Pacific or China, and not to mention our access to 38 lenders, many private lenders, and over 2000 lending products.
Thanks again for taking the time today to read our articles and we look forward to keeping you further informed on our thoughts about interest rates and the general finance market.
All the best for 2017!