Anyone with half an eye on the headlines will have heard that the major banks are putting up rates, I thought I’d take the opportunity to provide a quick and simple update on what is happening, and why this will create an opportunity for you.
Our last article was in July – an update around what is happening in lending. As a part of this was provided some insight into what is happening with interest rate movements. We observed that the cost of funding for lenders was going up – based mostly in part to their exposure to where those funds come from (international markets). The US Federal Reserve increasing rates has a flow on effect which increases the cost of funding and therefore lenders need to pass that onto consumers.
For the major banks, they are less reliant on lending from international markets as they take a significant amount of funds in deposit accounts. However the same principal applies with costs going up they are of course going to put their rates up. It started with Westpac Group, last week and now we’ve seen CBA and ANZ follow suit.
No word yet from NAB, who would be no doubt frantically crunching the numbers to work out if they go for market share or margin!
What is interesting is that some of the increases by the majors are much more than what the smaller lenders have passed on as wholesale cost, despite them having less exposure to the international markets.
What does this all mean? There will be opportunities to get a better deal!
The medium to long term direction for rates will be up. In the short term it means it is going to be hard to understand exactly who is going to be able to do the best deal, as every lender will have a different position on their wholesale fund increases and what they choose to do with their margins.
I’d expect there will be opportunities than ever to negotiate with lenders on rates and for those currently in mortgages you should make sure you are keeping an eye on what your rates are and if that is still competitive.
Once the dust settles on all the rate changes a path forward will present. There will be opportunities to negotiate with your existing lender to ensure you are not paying a higher rate than you should, and failing that there are going to be opportunities to refinance to another lender for a better deal.
I’d also expect in the short term that fixed rates will move upward. For those that are looking to do applications in the short term I would strongly recommend you consider a rate lock feature as it could be a matter of weeks, rather than a matter of months before we see this landscape evolve.
We can expect the battle for new customers will remain as strong as ever for all lenders,with heavy discounting. The next few months will be as good a time as any to talk to your mortgage broker about your specific situation and to work out if there is a better deal elsewhere – if in doubt please pick up the phone!