Banks Not Passing Interest Rate Falls on, Because They Have Increased Market Dominance Recently

“ABS Housing finance figures released today show that 92.4% of the $14.5 billion in new housing loans taken out in February, were issued by the banks. This is the highest market share ever recorded by the the banks, and eclipses the 92.2% market share recorded in January 1994,” Mr Morrison said.

“At a time when people are asking why banks are not passing on rate cuts to their customers, it is worth noting that the level of competition in home lending has also reached its lowest point on record,” he said.

“Under the former Coalition Government, the market share held by the banks fell to as low as 74.1% in May 2002, with greater competition heralding a new era of opportunity for people and families looking to buy or refinance their home.

“Under the Rudd Government, the banks have enjoyed a renaissance of dominance, flowing from their deposit and wholesale term funding guarantees, with smaller lenders unable to compete or attract capital on the same favourable terms enjoyed by the banks, underwritten by the taxpayer, courtesy of Kevin Rudd and Wayne Swan.

“Fixed rate customers are facing exit fees of $20,000 or more to break out of their loans to access the lower variable rates and such fees comprise a growing proprtion of fee revenue for banks. This, combined with the failure of banks to automatically pass on rate cuts, makes it timely to question the value being obtained by taxpayers and homeowners from the Rudd Government’s declaration of most favoured status on our large and highly profitable banking sector.

“Prior to yesterday’s RBA rate cut, analysis by the RBA showed that only 265 basis points of the 400 basis point cut in rates to that time had been passed on to mortgage holders, after taking account of those locked into fixed rate mortgages. This means the banks have effectively pocketed more than a quarter of the rate cuts intended as a stimulus for mortagage holders by the RBA.

“The increasing dominance of the banks in the housing finance market needs close scrutiny, especially given the strong support being provided by the Government. This is especially critical as banks begin to further tighten their lending criteria to as low as 80% loan to value ratios, which if applied across the board could see between 30% to 40% of potential buyers exit the market and place significant pressure on house prices.

“These same tightening of conditions also serves to counteract the stimulus provided through the First Home Owners Grant, that has so far proved successful in stimulating new housing construction.

“The stability of Australia’s housing market, which has not experienced the 20%+ collapse suffered in the US and UK, has been a key factor in underpinning consumer confidence in Australia. It is vital that the banks ensure that credit continues to be responsibly extended to this vital sector of our economy. With competition hitting new lows, it is only the banks who are in position to do this,” Mr Morrison said.

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Marc Pallisco

A freelance property analyst and journalist, Marc is a co-founder of realestatesource.com.au.

Marc Pallisco

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