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CBA announced that the bank will be decreasing the interest rate for their variable Home Loans and Investment Home Loans by 0.25% p.a. The interest rate cut on variable rates will be effective 20/05/2016.
For a variable rate home loan of $350,000 this change will save our customers around $55 a month.
ANZ today announced it will decrease interest rates across a range of variable lending products for home owners and small businesses, while increasing the rate on its 4-month Term Deposit by 1.00%pa.
All Standard Variable Rate indices for Residential Home Loan products to decrease by 0.19%pa. For Owner Occupiers this reduces the Index Rate to 5.37%pa.
All Business lending variable rate indices will decrease by 0.25%pa.
Deposit rates for 4-month Advanced Notice Term Deposit to increase by 1.00%pa to 3.00%pa.
Introduction of a special highly competitive 2-year Fixed Rate Home Loan for Owner Occupiers of 3.75%pa.
ANZ Group Executive Australia Fred Ohlsson said: “Today’s decision strikes a balance between ensuring our home loan customers continue to get a competitive deal and continuing to support our small business and deposit customers. “The background is that wholesale funding costs have again been rising in recent months. While we’ve absorbed this for some time and taken steps to reduce costs in our own business, higher funding costs mean we are only in a position to pass on a portion of the reduction in the cash rate to our customers.
“Our rates remain low by historical standards and our standard variable residential rates remain competitive having maintained the lowest standard variable rate for almost three years. For customers wanting to lock-in low rates, we’ve introduced a highly competitive 2-year Fixed Rate home loan of 3.75%pa.
“However, we also know that falling interest rates impact many customers that rely on their savings. This is why we’ve also taken the decision to lift our popular four-month Term Deposit rate by a full 1%pa,” Mr Ohlsson said.
Westpac today announced a reduction in its variable home loan (owner occupied) and residential investment property loan rates by 0.25%. It also announced a reduction in variable rate small business loans by 0.25%. The effective date is 23 May, 2016.
This will bring the headline owner occupier home loan variable rate to 5.43% per annum (comparison rate 5.57% per annum*) and the headline residential investment property variable rate to 5.70% per annum (comparison rate 5.84% per annum*).
George Frazis, Chief Executive of the Consumer Bank said today’s decision was good news for home loan customers and those looking to buy a new home. “Helping more Australians’ move into home ownership remains the top priority for
Westpac’s Consumer Bank, and today’s announcement is good news for customers.”
Following the Reserve Bank of Australia (RBA) board meeting on Tuesday 3 May, BOQ today announced it will pass on the full 25 basis point rate cut to its variable home loan customers.
CEO and Managing Director, Jon Sutton said the decision to cut rates came after careful consideration of a range of factors, including BOQ’s position in a highly competitive market.
“While funding markets remain volatile, we have made the decision to lower our rates to ensure we maintain the right balance between growth, risks and margins over the longer term while also considering the needs of our customers,” he said.
Variable home loans for owner occupier and investor customers will be cut by 25 basis points. With a new carded rate of just 4.47% BOQ’s lead product Clear Path will remain one of the most competitively priced variable mortgages for owner occupiers on the market.
The new variable rates will be effective 18 May 2016.
NAB today announced it will reduce its variable rate for home loans by 0.25% p.a.
This announcement means NAB’s Variable Rate for Home Loans (Standard Variable Rate) will reduce from 5.60% p.a. to 5.35% p.a.
NAB customers with a Standard Variable Rate home loan will save an average of $47-a-month on their monthly home loan principal and interest repayments based on a $300,000 loan over a 30-year term.
NAB Group Executive Personal Banking Gavin Slater said in making the decision to change interest rates, the bank considers a range of factors.
“The circumstances of each decision will always vary and we must take into account factors such as competition, regulatory capital requirements and funding costs,” Mr Slater said.
“Today’s decision balances the needs of our home loan customers with our shareholders.”
Today’s change applies to Owner Occupier and Residential Investment variable rate home loans.
NAB will also reduce its rate on standard variable business rate lending products by 0.25% p.a.
The new rates will be effective from Monday 16 May 2016.
At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.75 per cent, effective 4 May 2016. This follows information showing inflationary pressures are lower than expected.
The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently. While several advanced economies have recorded improved conditions over the past year, conditions have become more difficult for a number of emerging market economies. China’s growth rate moderated further in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook.
Commodity prices have firmed noticeably from recent lows, but this follows very substantial declines over the past couple of years. Australia’s terms of trade remain much lower than they had been in recent years.
Sentiment in financial markets has improved, after a period of heightened volatility early in the year. However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.
In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom. GDP growth picked up over 2015, particularly in the second half of the year, and the labour market improved. Indications are that growth is continuing in 2016, though probably at a more moderate pace. Labour market indicators have been more mixed of late.
Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.
Monetary policy has been accommodative for quite some time. Low interest rates have been supporting demand and the lower exchange rate overall has helped the traded sector. Credit growth to households continues at a moderate pace, while that to businesses has picked up over the past year or so. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.
In reaching today’s decision, the Board took careful note of developments in the housing market, where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate. At present, the potential risks of lower interest rates in this area are less than they were a year ago.
Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.
Negative interest rates are taxes in sheep’s clothing. Few economists would ever claim that raising taxes on households will stimulate spending. So why would they think negative interest rates will?
If you pick up any principles of economics textbook, there will typically be a discussion of taxes and tax incidence. Tax incidence describes who bears the burden of a tax. For example, suppose the government levies a payroll tax on a firm. The burden of the tax may be borne by the firm, the workers or the firm’s customers.
How can this be if the firm is responsible for paying the tax? The firm may bear the burden of the tax by accepting lower after-tax profits. However, the firm can pass the tax onto its workers by paying them lower wages or hiring fewer workers. The firm can also pass the tax onto its customers by charging them a higher price for the firm’s output. In general, all parties bear some portion of the tax.
Similarities to Taxes on Banks
This logic also applies to a tax levied on banks. Banks hire inputs (in this case, deposits), which are used to produce output (loans). The bank charges a price for its output (the interest rate on the loan) and pays wages to its inputs (the interest rate on deposits).
The spread between the loan rate and the deposit rate determines the profit margin for the firm on a loan (ignoring default costs and other costs for ease of exposition). So any tax imposed on banks will be borne by the bank, the depositors and/or the borrowers. The firm can bear the burden of the tax by accepting lower profits. However, the bank can also pass the tax onto depositors by paying a lower interest rate on deposits and/or pass the tax onto borrowers by charging them a higher interest rate on loans.
Negative Interest Rates
This brings us to negative interest rates. Many foreign central banks—such as the European Central Bank, the Bank of Japan and the Swiss National Bank—have implemented negative interest rates on bank reserves as a policy tool to stimulate demand for goods and services. If a bank holds a dollar of reserves, the central bank may take, say, half a cent.
The hope is that a negative interest rate will induce firms to lend out the reserves by charging a lower interest rate on loans. In short, “use it or lose it.” More lending would stimulate spending on goods and services, which would lead to higher output and upward pressure on inflation.
A Tax on Reserves
But a negative interest rate is just a tax on the banks’ reserves. The tax has to be borne by someone:
- The banks can choose not to pass it on and just have lower after-tax profits. This will depress the share price of banks and weaken their balance sheets by having lower equity values.
- The banks can pass the tax onto depositors by paying a lower interest rate on deposits or charging them fees for holding the deposits. In either case, depositors have less income to spend on goods and services.
- The bank can pass the tax onto borrowers by charging them a higher interest rate on a loan or higher fees for processing the loan. In either case, it is more costly to finance purchases of goods and services by borrowing.
None of this sounds very “stimulative” for consumer spending. But then, no tax ever is.
Negative Interest Rates in Other Countries
What has happened so far in countries that have tried negative interest rates? The figures below provide answers. As seen in the first chart, bank stock prices have definitely taken a hit. After initially continuing their downward trends, interest rates on mortgages have now risen in Germany and Switzerland (the second chart). Banks have been very reluctant to charge negative deposit rates for fear of a backlash from customers (the third chart).
At the end of the day, negative interest rates are taxes in sheep’s clothing. Few economists would ever claim that raising taxes on households will stimulate spending. So why would they think negative interest rates will?
The CoreLogic April Home Value Index results show the trend for capital gains has dropped from the peaks of 2015 with dwelling values continuing to track higher across each of the capital cities over the first four months of this year.
In April, the pace of capital gains rebounded from the relatively flat numbers recorded in March, with dwelling values increasing by an average of 1.7 per cent across the CoreLogic combined capitals’ index. The latest figures now take the combined capital city dwelling values measure 3.3 per cent higher over the first four months of 2016.
Across the country, housing market trends remain mixed, however, CoreLogic Research Director Tim Lawless noted that the improvement in the rate of capital gains has been ‘broad-based’ during 2016 with every capital city except Perth recording a lift in dwelling values over the calendar year to date.
“The results show value growth moved at a faster pace compared with the final three months of 2015 when capital city dwelling values slid 1.4 per cent lower off the back of weaker market conditions in Sydney and Melbourne.”
“While we’ve seen capital gains moderate substantially after peaking last year in Sydney and Melbourne, dwelling values continue to trend higher, just not as fast. The annual rate of growth in Sydney peaked at 18.4 per cent in July last year and has since moderated back to slightly less than half the peak rate of growth, at 8.9 per cent over the most recent twelve month period,” Mr Lawless said.
Index Results as at April 30, 2016
Melbourne’s housing market continues to show a level of resilience to a slowing trend, however the annual growth rate has fallen from a recent peak of 14.2 per cent to the current annual growth rate of 10.1 per cent; Melbourne was the only capital city to see double digit growth over the past twelve months.
Perth and Darwin remain as the only two capital city markets to experience a decline in home values over the past twelve months, with Perth values down 2.1 per cent and Darwin values 3.7 per cent lower. Mr Lawless said, “With recent month-on-month increases in home values in these two cities, the declining trend rate is now levelling. This may be an early sign that these markets are beginning to find their cyclical trough after more than a year of annual declines.”
Over the current growth cycle, which commenced broadly in June 2012, capital city dwelling values have moved 34.4 per cent higher, led by a 52.7 per cent rise in Sydney home values, and a 37.1 per cent lift in Melbourne values. Mr Lawless said, “This result highlights the two-tiered nature of Australia’s housing market.”
Brisbane experienced the third highest rate of dwelling value growth over the growth cycle to date; dwelling values in the city are now up 18 per cent. According to Mr Lawless, Australia’s regional markets also exhibited a lift in house values over the year to date. “While house values across the non-capital city markets have generally underperformed compared with the capital city regions, regional house values moved 2.4 per cent higher over the first quarter of the year.”
Last night the ABC aired a programme on the housing boom. It focused on the impact property investors are having on driving home prices higher and making access to property ever more difficult for owner occupied purchasers who are trying to enter the market. Whilst there was little that was new to followers of this blog, one segment looking at the high rate of vacant units in the Melbourne high-rise developments was striking.
Also, there was evidence of applications being “tweaked” to make incomes higher, such that a loan would pass underwriting muster. Some are suggesting this is a prevalent practice, and links to poor bank culture.
You can read the transcript across at the ABC site, and watch the programme (if you are not Geo-blocked).
Here is the segment on Melbourne’s ghost apartments.
I think the missing element for me was the fact that this is an intentional strategy, led by the Reserve Bank to make housing, and households do the heavy lifting as the mining boom fades. No surprise then that loan to income ratios are off.
The long term implications of this policy have yet to come home to roost.
The number of dwellings approved rose 0.6 per cent in March 2016, in trend terms, and has now risen for four months, according to data released by the Australian Bureau of Statistics (ABS) today.
Dwelling approvals increased in March in the Australian Capital Territory (18.9 per cent), Western Australia (1.1 per cent), Queensland (0.8 per cent) and Victoria (0.2 per cent) in trend terms. Dwelling approvals decreased in the Northern Territory (18.1 per cent), Tasmania (1.5 per cent), New South Wales (0.3 per cent) and South Australia (0.1 per cent) in trend terms.
In trend terms, approvals for private sector houses rose 0.3 per cent in March. Private sector house approvals rose in Victoria (1.7 per cent), but fell in South Australia (0.8 per cent), Western Australia (0.7 per cent) and Queensland (0.2 per cent). Private sector house approvals were flat in New South Wales.
In seasonally adjusted terms, dwelling approvals increased 3.7 per cent. Private sector house approvals rose 2.6 per cent, while private sector dwellings excluding houses rose 6.7 per cent.
The value of total building approved fell 0.9 per cent in March, in trend terms, and has fallen for eight months. The value of residential building rose 0.4 per cent while non-residential building fell 3.9 per cent.
