Banks Hit Us Hard, But We Lap It Up

Sydney Morning Herald

Wednesday March 12, 2008

Jessica Irvine Economics Correspondent

THE five big banks have now risked homeowners' ire by lifting their lending rates above the Reserve Bank's official increase, but new figures suggest customers are not punishing them for it.

ANZ and St George yesterday followed the lead set by the nation's biggest lender, Commonwealth Bank, lifting their standard variable rates by 0.35 percentage points - 0.10 percentage points above the Reserve's rate.

But official home loan figures released by the Bureau of Statistics show the share of new loans being signed with banks struck a decade-high 83.6 per cent in January - the first month banks began adding their own sting to official rate rises.

The shift by borrowers towards banks came amid calls by the federal Treasurer, Wayne Swan, for customers to "vote with their feet" if they did not like the interest rate rise set by their lenders.

An economist at Westpac, Matthew Hassan, said it was impossible to tell from the figures whether customers were switching between banks, but it was clear they were not switching to non-bank lenders.

"Perhaps people are also a little bit worried about the issues of the non-bank lenders and the credit crunch problems," he said.

The latest rises mean there is now no common variable rate. ANZ and St George have the highest standard rate, 9.37 per cent, followed by Commonwealth on 9.32 per cent and NAB and Westpac on 9.27 per cent.

Mr Swan said last night that customers would reward banks that best shielded them from increased costs flowing from the US subprime crisis. "Banks which don't act in a way which their customers think is reasonable will now run a greater risk of losing customers," he said.

Mr Hassan said the difference emerging in lending rates would prompt borrowers to consider switching. "It used to be that the banks would shadow each other. That is no longer true."

Amid fears of even higher rates, many borrowers have opted for fixed loans, with 22.3 per cent of all new loans in January being taken out at fixed rates. The number of people taking out new loans rose 2.3 per cent, to 67,886, compared with December.

Keep your shirt - Money liftout

© 2008 Sydney Morning Herald

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