The debate over why the banks haven’t passed most of the 0.5% cut in the official cash rate on 30 April through to lower mortgage interest rates is raging. With many individuals and firms suffering financially it is easy to have sympathy with the view that banks should be willing to accept significant shrinkage in margins and profits, with this cause being taken up by the Minister of Finance recently.
This is an important issue but much more important is the massive drop in mortgage interest costs awaiting the large number of borrowers who have fixed mortgages coming up for re-pricing over the next two years.
If mortgage interest rates remain at around current levels for the next year, which the Reserve Bank seems committed to achieving, the affected group of mortgage borrowers could be $1.2b better off and inevitably a reasonable portion of this increase in disposable income will be spent.
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