I was recently involved in an argument with a few of my Smartline colleagues.

We were arguing about the size of the gap that has opened up between the RBA cash rate and basic home loan rates since the GFC.

During this friendly argument we all decided to have a guess at the size of the “RBA vs Home Loan” rate gap since the start of the GFC (October 2007).

To make this argument fair we all agreed to use one of the more competitive major banks as a yard stick for a comparison with the RBA.

Here are our guesses:

A. 0.90%
B 1.00%
C 0.75%
D 1.10%

Answer: 1.46%.

Yes, all of those RBA movements where the banks kept a little bit for themselves have added up to a massive GAP.

Let’s put this into perspective. A $300,000 home loan now costs $4,380 per annum more than it would have done if the GFC had not occured.

We have to be fair and point out that the lenders had no choice but to raise rates because their funding costs were dramatically increasing.

However, these funding “costs” have been reducing for quite some time.

So if the bank’s costs have been reducing, where are the cuts to our home loan rates?

Answer: The cuts are definitely there but you need to make yourself a new client (in most cases, with a new bank).

The lenders are now competing very hard for your “new” business and as you can see from the chart below, they now have plenty of margin to play with.

This next chart demonstrates why so many Australians are not negotiating a better deal on their mortgage.

Rates are currently very low and you could be forgiven for thinking that you are already on a good deal. However, the lenders have much more margin to play with these days.

As always, please send me an email if you would like us to conduct a health check on your loans.

Share on:

DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.