Bernie Lewis executive chairman, Mark Lewis, says that in the last five years home loan borrowers have paid a staggering $18 billion extra in interest on their home loans due to banks not passing on the RBA interest rate cuts in full – and he’s not buying many excuses.
“On a grassroots level, I agree: the banks aren’t obliged to move in lockstep with the RBA…but the gap between the Reserve Bank cash rate and the average standard variable interest rate of the four major banks has nearly doubled since 2007 [from 1.8% in 2007 to roughly 3.4% currently].”
Lewis says he doesn’t buy into banks’ argument that widening rate differential is due to funding pressures, saying that for borrowers it’s a “bitter pill to swallow” in the face of record profits being declared by the majors.
“It doesn’t correlate to the borrower - when they talk about emergency levels, they talk about stimulating the economy. Banks are now holding much higher margins than they were [pre-GFC]. It’s not having the same impact as it was back then; the cash rate would need to drop down to about 2.0%.”
He says that, for some reason, many borrowers seem "apathetic" to the fact thay may be paying more than the need to on their home loan - and says banks are more than happy to take the extra cash and add it to their bottom line profits.
“You could argue that they have the right to increase, but the other thing that comes into play is the lack of competition in the market. With reduced competition comes lazy banks and a growth in margin.”
Lewis says the latest figures simply reinforce the need for increased support of non-majors.
“If we had the healthy competition we had pre GFC, I’m sure banks would be passing on the full 25 basis points. Brokers need to be mindful of making sure we’re supporting the second and third tear banks and non-banks, so long as it’s appropriate for the customer.”