Financial Newsletter Sunshine Coast
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Financial interest rates in 2011CAN YOU BANK ON IT?If the reserve bank of Australia (RBA) meets the expectations of some economists and raises the cash rate two or three times during 2011, what will your bank do? Will they lift rates in line with the RBA increase or will they break away and lift rates independently of the official cash rate? Since the mid 1900s is has become common practice for banks to move their indicator rates within hours of a change to the official cash rate. Yet in recent months their increases have gone beyond the official rates hikes, triggering strong public and political criticism. Head of the National Australia Bank, Cameron Clyne, says any link between the two events is a perception the banking sector has created for itself by consistently adjusting rates in line with RBA changes. “If the banks continue to move in line with the RBA, up or down, then we are continuing to compound the view that in fact our funding is related to those moves in the cash rate”, says Clyne. But that’s not true he claims. Other factors play a greater part in determining bank rates, such as funding costs which have risen sharply in the wake of the global financial crisis (GFC). Short-term money market rates have risen well above increases in the cash rate and there has been a significant increase in long-term funding costs. These pressures prompted banks to lift their fulldoc variable-rate mortgages by some 40-60 basis points more than the cumulative increase in the cash rate since 2007. What’s more, the bank chiefs who spoke at the senate inquiry into the banking system in December 2010 believe funding costs
that is the cost of funds they borrow from overseas and also via term deposits, are still above where they were before the GFC. |
Newsletter Archive
A guide to shaking off the doom and gloom Summer 2011 Superannuation death benefit Spring 2011 Riding the financial rollercoaster Spring 2011 Share market bounce backs volatility August 2011 Financial plan baby bonus or paid parental leave Winter 2011 Financial interest rates in 2011 March 2011 Financial investing in 2011 December 2010 Estate Challenges: Financial Summer 2010 Financial Planning Warren Buffett Spring 2010 Intergenerational wealth planning September 2010 Three stages of retirement August 2010 Reconsider your financial goals? July 2010 What does a financial adviser do? June 2010 Federal Budget 2010 - 2011 May 2010 Henry Tax Review May 2010 End of year tax tips April 2010 Wasting your money on insurance? Summer 10 Financial Planning Summer 09 Financial Planning Spring 09 Investment Returns In Perspective September 09 Retirement planning August 09 Financial New Year's Resolutions August 09 Financial Planning - Budget, Tax Tips, Stock Market Winter 09 Age Pension and Superannuation Federal Budget June 09 Economic and market highlights June 09 End of Financial Year Tax Tips 09 May 09 Investor Newsletter Autumn 09 Investor Newsletter March 09 Superannuation Newsletter Summer 08 Retirement Newsletter Spring 08 Tax Minimisation Newsletter Winter 08 Superannuation Newsletter Autumn 08 Superannuation Newsletter Summer 07 Financial Newsletter September 07 |
SWITCHING BANKS
If you still carry debt, then you might be one of the growing numbers who are looking to switch providers.
A recent study by Core Data found that 23 per cent of the 15,000 mortgagees interviewed said they were starting to look around for a new lender. If you extrapolate this, then you are looking at about a million people interested in switching.
Of course not everybody will make the move, but the bid by the Federal Government to bar exit fees on all new mortgages from
next year should make it significantly easier in the future. Exit fees can vary from less then $1000 to as high as $7000.
However, it may also mean that low starting rates become a thing of the past if customers can move their loan to the next bank
before the first can make any profit.
Too much bank regulation can also have a negative impact. If the majors are forced to keep mortgage rates low, then they will ration the amount of lending, as they have done in the past. This will impact those who are less creditworthy and small businesses that need bank funding in order to grow and create jobs.
WHERE TO NEXT?
While there is plenty of whingeing about bank profits, the after tax return on equity for the big four has averaged 15 per cent over the last 10 years and has dropped from the highs of 2007, so it’s hardly excessive. The US, England, France and Germany, to mention just a few, all wish their major banks had remained profitable through the GFC!
Given there is no strict connection between the RBA cash rate and the banks’ costs in funding mortgages, we might expect when rates eventually fall, the banks will deliver greater cuts for their customers. But perhaps you shouldn’t hold your breath!
Disclaimer: This document was prepared by Futuro Financial Services Pty Ltd ABN 30 085 015 (AFSL number 238478) without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such. Futuro Financial Services Pty Ltd does not accept any responsibility for the opinions, comments and analysis contained in this document, all of which are intended to be of a general nature. Accordingly, reliance should not be placed by anyone on this document as the basis for making any investment, financial or other decision. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before many any financial investment or insurance decision.
Disclaimer
All representations and information contained in Futuro in Focus are made in good faith and are believed to be correct at the time of preparation. Articles are of a general nature and they do not purport to be specific investment advice. Individual needs or other considerations have not been taken into account, thus information contained herein should not be relied upon as a substitute for detailed advice. Futuro Financial Services will receive fees or brokerage from the provision of advice or placement of investments. You may, by contacting our Privacy Officer on 07 3018 0400 or by writing to Futuro Financial Services Privacy Officer GPO Box 942 Brisbane QLD 4001, request not to receive further editions of Futuro in Focus.
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