Feb 062008

The expected norm when the Reserve Bank of Australia exercises monetary policy is for banking houses to mirror the increased cost of funds by raising appropriate retail lending rates. That’s ‘mirror’, which means to pass on whatever the rise was to customers through their contracted interest rates. Of course, anyone who has ever read a loan agreement will realise that lenders in Australia can lawfully charge whatever they please in interest rate terms. The simple fact that we expect only to bear the RBA rise in rates, doesn’t mean we actually get the RBA rise in rates.
Today’s rise in housing rates by the Commonfilth Bank departs from the expected norm in a somewhat troublesome manner. Clearly, what this 0.05% higher rise than that decided upon by the RBA says that the CBA under-estimated their losses during the October-November period of 2007, when the first tranche of sub-prime mortgage losses were felt by lenders in Australia, and the 0.10% increase applied by the CBA in January wasn’t sufficient to recoup those losses. The question which arises is this. Is it ethical of the bank to adopt a bloody-minded attitude which says, “fuck you, borrower…..read your loan agreement!”?
The cure for such attitudes is regulation, and I seriously doubt whether any government of any persuasion would ever head down that road. The other option, which remains open to all borrowers at any time, be they business, commercial or retail home borrowers, is to fixed their lending interest rates. I did, several months ago. If you’re smart, especially on a home loan, you’ll do the same. Leaving one’s self open to the whims and fancies of the financial marketplace is a prime example of caveat emptor.