Melbourne Cup Day 2010 will go down as a memorable day – and not just for the winning horse, Americain. The Reserve Bank of Australia’s decision to raise the official cash rate by 0.25 per cent to 4.75, and the Commonwealth Bank’s subsequent announcement that it would raise its rates a further 0.20 per cent over and above the RBA created shockwaves through the country.
In the weeks before the RBA meeting on November 2, the big banks had been foreshadowing that their mortgage rates would go higher as the cost of funds – that what it costs the banks to borrow the money from overseas before they can lend it to Australian homeowners – has gone up considerably since the onset of the global financial crisis (GFC).
Money is a commodity. Like oil, energy, food and water – money costs money and the price changes by the second. Here in Australia we have been accustomed to the RBA setting the price of the money we borrow for decades. Unfortunately, as we grown more dependent on overseas sources for our money there are other forces which determine the eventual price we pay.
CBA’s move (and at the time of writing, they are the only bank to have lifted its rates higher than the RBA following the November meeting) was no surprise to those who follow the industry. And it is a move it claims is based on clawing back margin on the higher price it is now forced to pay when sourcing funds from the global money markets.
It has a not been a popular move. In fact, it has attracted the wrath of the Australian public and, in particular, the country’s politicians, as they spout populist rhetoric about regulating the industry instead of seeking out genuine, nation-building ideas for reform.
Our country has more than a trillion dollars tied up in superannuation funds. Why can’t the Government hive off a fraction of that money and sell it off to our banks and smaller non-bank lenders as secure, AAA-rated mortgages. It will provide more liquidity to fund mortgages here in Australia, and less reliance on borrowing from offshore.
Until something like that happens, Australian homeowners have to continue to be vigilant with their mortgages. Keep an eye on the rate you’re paying, make sure you are paying as much off as possible in order to mitigate any future rate rises.