Home News Banks are barking up the wrong tree by raising rates

Banks are barking up the wrong tree by raising rates

Font size :

Banks are blaming the wrong thing for the rising funding costs.

Higher funding costs have led to three of the four major banks and other lenders to raise their mortgage rates, much to the disappointment of home buyers. While lenders blame the declining deposits for the rising funding costs, the Reserve Bank of Australia said the real problem is entirely different.

According to Business Insider Australia, there are a number of analysts who go by the lenders' reasoning, noting that deposits comprise 60% of the funding mix of Australian banks. However, RBA's Chris Kent said there are many instances before when credit outgrew deposits.

Also Read: How funding costs are affecting mortgage rates in Australia

For Kent, while the current dynamics of credit and deposits has changed slightly compared to recent history, there is no strong reason for banks to blame slower deposit for the increase in funding costs.

Further, he said there were previous occurrences when the credit-deposit gap was more evident, but the impact on short-term money market was benign.

“Loans are not the only assets on banks’ balance sheets," Kent said, as quoted by Business Insider Australia.

He argued that if the deposit shortage was a problem that needs immediate attention, then banks would have to expand its deposit rates to increase market share. But this was not the case, as retail deposit areas have remained as is over the past 12 months.

"In short, there is little evidence that there is any relationship between the slowing of deposit growth and recent funding pressures in short-term money markets," Kent noted.

It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan

Mortgage News and Articles

The Keys to Performing a Proper Property Inspection The Keys to Performing a Proper Property Inspection

A property inspection is key when you're serious about buying a home or property, but how do you know what to look for? Read more

Aussie home loan market gets shot in the arm from US private equity Aussie home loan market gets shot in the arm from US private equity Non-bank lenders' growth cushioned the impact of reduced credit on home prices ... Read more

Number of First Home Buyers hits six-year high Number of First Home Buyers hits six-year high FHBs are now entering the market in numbers not seen since 2012 ... Read more

What could cause a 20% home price decline in Sydney, Melbourne? What could cause a 20% home price decline in Sydney, Melbourne? The downtrend will impact dwelling construction and would likely reduce credit growth ... Read more

More mortgage news and articles

Sponsored Links

Sunday, Oct 21, 2018
Top Featured Rates
Top Bank Rates

Get help choosing the right home loan

Let us help you find the right home loan for your needs.

Tell us a bit about your circumstances:
  • Purpose of mortgage
  • Household Income
    $
  • How much do you want to borrow?
    $
  • How much deposit do you have?
    $
  • How much is your house worth?
    $
  • How much do you still owe on your mortgage?
    $
  • What type of mortgage do you have?


  • How much is your new home?
    $
  • How much do you want to borrow?
    $
  • How soon do you want a mortgage?
Next
  • First name
  • Last name
  • Where do you live?
  • Phone number

Special Offers

Related Keywords