I don't know much abt economics etc. But I would like to know what made the banks to increase their rates to 14 pints and will it go higher or lower in the future? What impacts the interest rates increase and decrease? What's Your thoughts?
Thanks
Why The Big 4 Banks Decided to Increase Their Interest Rates?
newbiesh on 07/09/2018 - 01:34
Comments
Because it costs them more to source funds from the international financial markets now. Money goes where it earns the best so if another country has more attractive rates, you have to raise the interest you offer to get the funding you want.
So are they making bad investments then.
They are not investing, they are borrowing money from the international market. This is where a country like Turkey came unstuck, they borrowed excessively to finance growth and those debts were denominated in USD so when interest rates went up, repayments went up too, leading to inflation.
It's not just the rates going up elsewhere, it's the risk of a collapse in Australia's housing market rising that means the international finance want a bigger payoff. Thing is, of course, higher interest rates make collapse more likely as people can't refinance. It's a feedback spiral.
And to the OP, yes the interest rate will likely go higher, whatever the RBA thinks.
And health of the AU economy as a whole. In the short term, borrowing rates also change in response to current news. When Erdoğan failed to make the appropriate noises but went on the attack, the risk perception of Turkey was raised.
If the new rate is 14 pints, then I'm gonna have to water down their beer.
Well I don't know why they raised rates, it's not like the economy is very strong ATM so it wont be able to take too much pressure even though rates are very low for the last few years. Also given the RC into the banksters going on you'd think they'd keep their heads down for a while? As for the future I really don't know, some places have next to zero % interest and some countries have negative interest rates atm. It sounds bad but remember that debt money is pretty much created out of thin air by someone so it's not actually costing the lenders anything (except a revenue stream of course) see 'money as debt' to understand how it works. So unless something happens to pick up the economy (I think they are fomenting WW3 ATM, it seemed to work the last couple of times and the writing is on the wall) I can't see rates increasing too much more. If they did you would see several bubbles pop and the result wouldn't be pretty.
Well, this is the dilemma RBA is facing, they want to keep rate low to keep the housing and other sectors maintaining their growth to counter negative consumer sentiment but the international market is gradually forcing them to raise rate. Australia has been going against the current in terms of international economic growth in the past ten years now and its time we have to deal with reality.
They borrow money from US, which are booming. Interest rates are up over there so the banks have to service that debt with increasing interest. They pass the cost to you.
In the past, they use our monies (depositors) to fund mortgages but our monies are too expensive vs US at the time so they borrow from there instead.
When US interest rates are higher than us, they might then switch the funding mix back to OZ but I doubt that given our savings rate and now with Royal Commission, their focus is now payback against the people who screaming Royal Commission in the first place - ordinary borrowers.
I can see in the future, banks will scout for good and responsible clients and only lend or help them while borderline or emerging borrowers will be shafted (for they are the ones who complain a lot when things go pear shaped).
EDIT: Coincidentally, this topic came up https://www.ozbargain.com.au/node/401532
Banks do not borrow money from the US, albeit the majority of debt issues they make are denominated in USD. In fact they issue paper is all major currencies. The foreign currency is then swapped back into AUD to fund their domestic lending.
The whole issue of how the global financial markets operate is little understood - particularly by our so called "financial market" journo's.Just curious, do you know who owns RBA ?
I know Feds own by private banks citi/wells/jp …
But i can't find anything on RBA.
I know Feds own by private banks citi/wells/jp …
Wut.
RBA is a statutory authority.
@phunkydude That's a deep rabbit hole my friend. Be sure to have plenty of eneloops for your flashlight as you proceed down it! :)
I don't know much abt economics
And yet you think the big 4 shouldn't be increasing rates…… Hmmmmmm
I can't see where OP said they shouldn't be increasing rates.
OP asked WHY banks increase rates.
Most people who ask 'why' are really saying why did they, as in they shouldn't be.
I for one look forward to increased cash rates!! More saving dollars for me!
"why did they" does not equal "they shouldn't".
Enjoy your extra savings.
Enjoy your extra savings.
Enjoyed your increased mortgage rates!
"why did they" does not equal "they shouldn't".
You really don't know people that well then ;)
@JimmyF: I agree with SpottyMoose, I think it's pretty clear YOU are the one who does not know people.
@Adonael: Thank you for your valued comment. How did we go without it for so long.
If you really think the OP was asking just why, then you're just as silly!
because they want more money.
who doesnt…
This is great, Australian housing needs a correction.
Rates going up and prices down.
I don't know much abt economics etc
This video is for you then - Westpac banana smoothie video on mortgage rates
Is anyone else considering fixing rate because of this before they take effect?
The fixed rates will have already taken this raise into account. Over the course of a loan, variable is almost always cheaper, but you have to be willing to ride out the bumps.
They're raising them so they can make a profit on their ASIC fines.
Would you be shocked to learn they're already making a profit on your mortgage repayments?
Because they can!
They are a business. People have given them money (shares) and expect a return on their investment. If a percentage of their borrowing costs more, then they pass that on to those who they borrowed from. I guess that is where a credit union should differ as they should be looking after the customer (the union member) vs the share holder. However, they too will have potential extra costs.
The question is, did their actual costs go up by 0.15%, or are they looking to produce a better profit to the share holders after being publicaly pantsed of late by ASIC… Most likely a majority of the later.
No one should be taken aback by these increases.
Every prudent borrower would have understood that these are the times of the lowest interest rates on record and won't last forever.
Every prudent borrower would have been paying above the minimum repayments as if their interest rate was closer to the 7% mean.
Alternatively, every prudent borrower would have been putting as much into their offset accounts as possible.
Anyone that cannot handle a 15 basis points increase in interest when it is sub-4% now, has no business being in a mortgage or home ownership.
To offset their higher funding costs so that it doesn't eat into their profit margins.
Previous comments relating to higher funding costs are correct. It is also partly due to APRA (banking regulator in Australia) requiring banks to be "unquestionably strong" in terms of capital benchmarks. The more capital banks hold, the less money they have to make more money with!
Fear not- Kogan home loans about to hit the market.
Because that's how they make money.
Is it to do with swap futures?
fxed rate with anz 3.75 my fixed rate expired and i refixed it 2 years 3.75 interest and principal
They raise their rates because people let them because they are too lazy to leave.
I cannot even understand how people put up with the crap rates (much lower savings, and much higher loan). I have all my money with online savings accounts, and I get at least 2% more on the savings side. If I were to get a loan, I would look elsewhere as well. I bet I could get at least 2% better loan rate. So the big banks start off with already a 4% higher margin than other banks, and it's no wonder their returns have been insane.
I work at a big bank, and we aren't paid lots. So it's not the regular people at the big banks that benefit from customer laziness, it is the top executives.
Right now, the major banks share prices could be cut in half overnight if everyone just put a few seconds into moving to an online bank like ING. But people are too lazy bitching about the royal commission case studies, god help they have to get off their ass and actually do something (and it only takes a few mins to open an account online with a drivers license).
If I were to get a loan, I would look elsewhere as well. I bet I could get at least 2% better loan rate.
I have my home loan with one of the big 4 and my interest rate is 3.85%, let us know how you go with getting a home at 1.85% LMAO
I can still guarantee you that it's not the best rate, and you are likely charged extra fees as well.
I never said it was the best rate, but you said you could get at least 2% better rate, so tell me where you can get a home loan with an interest rate of 1.85% in Australia….
I work at a big bank
Sure you do :)
But yet you think you can get a 2% lower interest rate on a loan with another bank even with the bank staff discount on interest rates you would get as an employee lol
Our staff discount is maximum 2% I think. So it just cancels it out.
What's with the 'Sure you do :)' comment and all the negative votes on my comments?
You think I am an executive of one of the other banks?
I am not. I am a junior employee of a major bank, and I have limited loyalty after the recent senior screwups.
The fed in the states has decided to raise interest rates and most other countries will follow suit.
Interest rates are at the lowest in 5000 years…