Newsletter – October 4 2019

“We’ve received a document from ANZ that wasn’t due to be released till tomorrow.

It says, from October 21st ANZ will no longer lend to individuals with income-to-debt ratio of more than nine-times.

This is huge.              

If you earn $100,000 a year, the ANZ won’t lend to you if you have debts of more than $900,000.

This is a bombshell revelation out of the ANZ” (Listen Here)

Newsletter – October 4 2019  

Naught. Nothing. A big fat duck egg – call it what you will but the Reserve Bank’s official interest rate for the first time in history starts with a zero.

0.75 percent.

Welcome to the uncertain new world of low interest rates, where big banks ignore Government pleas to fully pass on Reserve Bank rate cuts, after all four major banks have failed to pass on little over half of the official rate cut. (Watch Here)

Anybody over the age of 50 remembers – or paid – 17 percent on their mortgage.

The Reserve Bank – trying quell a housing boom and inflation – pushed the official cash rate to 17.5 percent.

It was 1990. And it triggered – as then Treasurer Paul Keating described it – the recession we had to have. The last recession Australia experienced.

So this week’s official interest rate – 0.75 percent – 16.75 percent less than 1990 – is unimaginable to anybody who once paid so much.

Then – as now – the rate decisions are largely about house prices. If housing is stable, or rising, people spend.

Now, following the RBA decision, the Commonwealth Bank moved first to cut its standard variable rate for owner-occupier and investor principal and interest loans by 13 basis points and interest only loans by 25 basis points yesterday.

National Australia Bank followed next with a 15 basis point cut across its owner-occupier and investor principal and interest and owner-occupier interest only loans, as well as a 30 basis point reduction in its investor interest only loan.

Westpac and ANZ followed more than 24 hour after the RBA decision – with Westpac announcing a 15 basis point cut across its investor and owner-occupier standard variable rate loans, while ANZ followed with a 14 basis point cut for owner-occupiers and 25 basis point cut for investors.

Now, the major banks were widely predicted to not pass on the full rate cut.

But, including costs, you can borrow from 2.77 percent with HomeStar, 2.8 percent with Athena and 2.93 with Mortgage House.

There’s just one thing missing with these lenders. None of them is a big four bank  -they still dominate home lending, with more than an 80 percent market share.

Historically the banks are less likely to pass on rate cuts in full. Of the last 21 times the Reserve Bank has cut rates since 2008, at least 15 times one of the banks has failed to pass on the cut in full. (Listen here)

And if big banks are to change their behaviour – and their rates – smaller lenders need to be given a chance.

The more market share they win, the more the big banks will be forced to compete. They more they’ll be forced to pass on Reserve Bank rate cuts in full.

One last thing: if you’re worried about small lenders … whether they’re safe … keep one thing in mind.

When you borrow money … you’re the risk … not the lender. They’re taking a chance on you.

 But the decision of the big banks has sparked the ire of the Prime Minister and Treasurer, with Scott Morrison saying  “They never learn. They honestly never learn. And it’s disappointing.

I suspect mortgage holders … have a reason to be disappointed in the banks basically profiteering

I mean, their profits are greater because of it! I mean, how else do you describe it!? I’ve never been one, whether as Prime Minister or Treasurer, to give the banks a leave pass when they fail to do these things” (Listen here)

Treasurer Josh Frydenberg also chipped in, saying “Its not just the advice of Government they’re going against. They’re also going against the advice of the Reserve Bank.”

“People should shop around, get the best deal, but also make their displeasure known to their banks because the rate cut should be passed on in full and that would be a good thing for consumers,” (Listen Here)

He was echoing calls from Reserve Bank Governor Philip Lowe who earlier this year encouraged people to ask their bank for a better deal.

“I encourage everyone to go to their bank and ask for a better deal than the one they have. When people do that, they often find that the bank will be prepared to give them a lower interest rate.” (Listen Here)

Even Labor have knocked the banks decision with Shadow treasurer Jim Chalmers saying “If the interest rate cuts are going to have any impact at all then we want to see them passed on by the banks and the financial institutions,”

“It’s disappointing when that doesn’t happen; when they thumb their nose at the Treasurer that’s a disappointing outcome.”(Listen Here)

And it is – it is disappointing.

For those with a $400,000 mortgage, the full rate cut is worth $57 a month; and that’s on top of two previous cuts in June and July. So with the banks not passing on the full rate cut…that means more money out of your pocket because the banks are not giving you the full break.

And with a dwindling economy and people feeling the pinch of lack of wage growth over the past few years, that is not how to grow the economy. 

Katrina Ella, economist with Moody’s Analytics says “Its clear that Australian households really need additional support from Government and income tax cuts would really target that particular source of weakness.” (Listen Here)

Now, with zero percent interest rates in plain sight, it is clear new methods to stimulate our economy are needed.

One option – print more money and buy back government bonds to put more cash into the economy. That’s called quantitative easing.

Another option – hand out more tax cuts. Or roll out the bulldozers and build infrastructure more quickly.

But each of these options, remember, adds billions to our national debt.

But despite the Reserve Bank encouraging the Government to do more, the Treasurer held his line.

Saying the Government is sticking to its economic plan when asked if its time for the Government to announce more tax cuts.

His answer alone signals a chance that the presses will be turned on, more money printed… quantitative easing started. Just like America, Europe and Japan after the Global Financial Crisis…where their rates fell to zero.

With another rate cut looking very likely – February is my predication – just how low the Reserve Bank is willing to go remains to be seen.

GDP figures, employment number, wages growth, house prices and consumer confidence all play a part.

9News –

The gut-wrenching stockmarket ride is back – Watch Here

Money News –

Are we experiencing the farmers ‘GFC’? – Listen here

Highlight –

Why Hungry Jack’s founder Jack Cowin says the future is vegan – Listen Here

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