Already we are into 2012, and the Reserve Bank is about to make a cut in the cashrate.

Will the banks follow suit?

Here is what the MFAA (Mortgage & Finance Association of Australia) thinks..

2 February 2012

The Mortgage & Finance Association of Australia (MFAA) believes next Tuesday’s expected rate drop by the Reserve Bank may precipitate a major change in lenders’ reactions and challenge borrower behaviour as a result.
Chief Executive Officer of the MFAA, Mr Phil Naylor, said “Some lenders have already indicated they will not move in lock step with the expected rate drop by the Reserve Bank next week, especially as their overseas funding costs are rising.
“As a result the drop may not be passed in a timely fashion or not at all to borrowers, who will then be faced with the challenge of continuing to meet their current interest payments without any respite. This will please neither the Reserve Bank nor the Federal Government, which will put pressure on lenders to pass on the rate cut”, he added.
Indeed one major bank has already made the decision to break out of the Reserve Bank interest rate cycle and run to its own agenda about what rates it will charge.
This change is expected to be followed by other lenders, meaning the already very complicated market with myriad offerings will become more challenging for borrowers to negotiate.
The gauntlet will be thrown down to borrowers, who will need to assess their options and may be motivated to seek a better mortgage deal from another lender.
Mortgage brokers currently have a market share of 43 per cent of the mortgage market and represent the best chance for borrowers to capitalise on the change in cycle and negotiate a better deal with their own lender or move to another.
“2012 will see a more challenging economic environment and coupled with a change in lenders’ behaviour, the onus will be on borrowers to seek out a better deal for themselves through an MFAA Approved Broker”, concluded Mr Naylor.
Phil Naylor
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