Lenders have become so predictably greedy in recent years that Tuesday’s decision by the Reserve Bank of Australia (RBA) to cut the cash rate barely elicited a response from most people. Why would it? The soul-stealing demons at our biggest banks probably won’t pass on the reduction in full anyway.
Remember when RBA cuts actually meant something? There’d be an air of excitement surrounding the first Tuesday of the month and near-euphoric celebration if rates fell.
These days, there’s little point getting your hopes up. Sure, there’s an initial tingle when the good news comes in. It’s like spotting a giant present under the Christmas tree with your name on it. Then reality sinks in and we all remember that lenders are just a more sinister version of the Grinch.
Instead of something shiny and exciting you really wanted inside that big package, you peel back the paper and pop the lid to find the rotting carcass of road kill.
During the global financial crisis, banks pleaded for our understanding and compassion when they’d decide not to pass on cuts in full – or worse, when they’d raise them out of the blue and independent of official movements. Lending costs were through the roof, they’d say. Customer numbers were down, we’d be told. For our own good, we had to give them some slack.
And for a while, we did. The excuse seemed plausible. The world seemed to be going to hell in a hand basket and our survival required some sacrifice. Then, one by one, banks started posting massive, multibillion-dollar profits.
Counting yesterday’s move by the RBA, there have been three official rate cuts this year. How many of the big lenders do you think passed them on in full? Imagine the sound of crickets chirping right about now.
The arrogance is pretty astounding. Profits generated by major banks rose almost five per cent in the first half of 2012, despite the slowest recorded home lending growth on record.
Several weeks ago, the Commonwealth Bank posted a record $7 billion profit for the 2011-12 financial year. Seven. Billion. Dollars. PROFIT. Not revenue. It’s actually hard to comprehend.
In fact, a report released in June found Australian banks are the most profitable in the world. This ranking is apparently thanks in part to higher interest margins and lower operating costs.
You can bet your sweet bippy those guys would pass on any official rate increases in full.
Imagine if mortgage holders had the power to behave as obscenely as banks do. Picture an almost dream-like world where we’re just as self-interested when it comes to our obligations. Rather than a bit of give and take, what we pay would be based on what we feel like handing over.
Income this year a bit less than you’d hoped? Simply pay less interest. Cost of running your household rising? Seek to recoup the difference by scaling back your payments. Simply sick of handing out so much? Don’t!
Sadly, borrowers remain pretty powerless. Despite legislative changes designed to make it easier to switch banks, most of us don’t bother – even in the face of such extreme contempt that costs us cold, hard cash. It’s just all too bothersome.
Well, stuff that. Like confronting a bully, I say it’s high time we fight back. No more should we tolerate being treated like trash, because we do have the power. A handful of lost customers won’t drive change, but a whole bunch will. If customers voted with their feet and shifted to lenders willing to provide a better deal, those unbelievable profit margins would begin to thin and there’d have to be a rethink of how the big guys treat us.
It takes a bit of effort, but it’s worth it. Independent brokerage Mortgage Choice says its data shows those customers who’ve refinanced save on average $10,000 each over five years. That’s definitely worth some paperwork.
A strong banking system is critical to our long-term economic stability and prosperity. That’s not in doubt. But fair practice is just as important and the conduct of most lenders is atrocious. They make their own calls on reductions but you can bet your sweet bippy those guys would pass on any official rate increases in full. I don’t know about you, but I’m sick of it.
Shannon Molloy is the deputy editor of Australian Property Investor magazine www.apimagazine.com.au