Time to Squeeze Back…
We sit and wait with bated breath each month for the RBA interest rate announcement and when we do hear that they have been reduced, the war of words start, voicing our opinions on what the banks should do…
Wow don’t we (deservedly so) trash the lenders who only pass on part of the rate cut… especially after we hear every financial quarter that the major banks are making record profits.
At what point is enough enough???
What can you as an individual consumer do to combat this?
If you think nothing, then you are highly mistaken.
Before I go into what can be done, lets go into what we see as a large mortgage broking business. We sit between you the consumer and the banks. Now what we see in the market place is totally different to what you, the end consumer, see.
Over the last 14 months The Standard Variable Rate SVR has dropped 1.75% yet as an average the major banks have only dropped 1.4%.
Therefore from our point of view, the banks have kept an extra 0.35% margin for themselves.
Sure the cost of doing business in this time has increased… we all know how much our electricity bills have gone up alone. But the banks use the old saying that “Cost of funds” have increased… and due to this increase they say they can only pass on part of the interest rate cut.
Some banks have argued that they have worn the extra cost of funding for some time but cannot continue to keep operating at a loss…
If that’s the case, then why do we hear of these record profits EVERY quarter???
Now to be fair, I am sure the cost of funds have increased, but have they increased 0.35% in line with extra margin they have kept over the last 14 Months?
A close friend of mine owns a Credit Union and over some general coffee catch-ups and the odd beer or two, he has explained how the cost of funds works and the fine margins that they now work with to stay competitive with the major banks. It’s a fine balance between what they offer their investors through term deposits and what they can offer as an interest rate discount.
The smaller lenders are literally being squeezed out f the industry by the majors and are working 5 times harder for every deal… even still he is not crying poor either!
On top of this, those with cash have had their margins being offered reduced along with a few years ago almost all lenders reduced commissions paid to mortgage brokers by as much as 30%-40%.
It seems like everybody is getting squeezed except the banks and their margins… they dictate terms and we, as sheep must adhere.
But what has happened since these reductions in interest rates is that even the majors are fiercely competing against themselves for every single home loan.
But how is that possible???
They don’t have any margin to negotiate on due to the rising cost of funds…
All I can say is Bollocks…
With every loan we submit, we now put through a pricing request to the lenders to get our clients an “extra” discount off the interest rate, on top of what they already offer as standard. For those clients with a few properties, the discounts can be pretty impressive… essentially as we shop lender against lender to see who wants the business the most…
Watching lenders fight for the business is like watching two starving dogs fight for a bone… if there is no margin, then why the rate fight?
If the banks loyalty lie in their shareholders, then you as a consumer should have no customer loyalty to any lender.
Looking at this from the lenders point of view: only a small percentage of borrowers will fight for a better interest rate… probably around 20%. Therefore the remaining 80% of their clients will pay the normal, highly profitable, interest rate… and then everybody’s happy… or are they?
I know if I were one of the 80%, I wouldn’t be!!!
But what they don’t know, won’t hurt em…
Now that’s customer service at it’s best…
So let me throw this out to all the readers who read my Blog… email me your loan statement, let us have a 10 minute look at your interest rate, and lets better it…
Even if it means that we stay with your same lender and simply hit them up for a better deal, then thats what we will do…
For those clients of ours already, we do this automatically and often without you even knowing and where possible we try and get you these better rates.
I can almost guarantee that if you haven’t look at your interest rate in the last 2 years, then you are one of the 80%…
Remember, that exit fees have been abolished from loans, so if you decide to refinance the switching costs are very minimal, making the process very simple… it’s your money!
And if your rate is sharp, I will tell you…
Lastly, now that the SVR went down last week, I will be watching fixed rates now very closely and when they make another downward movement… I am personally putting away some of my loans into a fixed loan. Money close to 5% or below is super cheap money… so take advantage of it whilst it is here… coz it won’t be here long…