Mortgage industry split on rate cuts

Mr Fels told News Corp newspapers earlier this week that borrowers are “owed an interest rate cut” because wholesale funding costs have been falling, and lamented the demise of smaller lenders.

However, speaking to Mortgage Business, Vow Financial chief executive Tim Brown said the big banks have enough margin to make further rate cuts, particularly with variable rates.

“I think when you look at the wholesale funds reduction over the last 12 months – and on top of that they’ve also reduced the rate they’re paying out on deposits – that hasn’t been equal to the reduction in mortgage rates, so therefore they’re holding a pretty healthy margin there,” he said.

Mr Brown said the banks had actually been making quiet rate cuts already.

“We’re getting a lot more of the lenders now giving us a call and saying, ‘We’ve got a bit more margin to work with. If you’ve got a deal we’re going to lose because of 10 basis points, give us a call, we’ve got another five or 10 up our sleeve’,” he said.

“So based on that, you would have to say there’s at least another 10-15 basis points’ margin that can come off the current variable rates.”

Mr Brown added that lenders would be highly unlikely to try to recoup their margin by cutting mortgage broker commissions.

“We’ve seen an increase in commissions to brokers from many of the larger groups and that’s a trend that I don’t think will reverse,” he said.

“I would suggest overall their borrowing costs have come down and there is more margin there to play with.”

Meanwhile, MAS co-founder Brett Hartley said the historical data suggested that the banks were at the limits of their margins.

He said the banks had “taken some pretty big haircuts” recently on fixed rates.

He also said the 15-point gap between the cash rate at 2.50 per cent and the 30-day bill rate at 2.65 per cent suggested there was minimal room to cut variable rates.

“The margin between the cash rate and the bill rate is historically on par with where it should be,” Mr Hartley said.

“It’s not like the bill rate is below the cash rate, which would indicate there is room to cut the cash rate.”