How Do Australian Banks Govern Their Mortgage Rates?

The land down under is a country well-known for its thriving economy and comfortable salaries. With the majority of markets now at an all-time high, enjoying substantial profits and expanding into new territories, there’s never been a better time for new home buyers to consider taking out mortgages in order to purchase a property.

One of the main concerns that many potential borrowers share relates to interest rates and how they can affect the amount that an applicant borrows from the bank. These concerns are certainly founded, especially as Australia underwent one of the most expensive rate periods just a couple of decades ago.

Back then home owners in need of cash from banks were expected to pay a ridiculous 17.50% on top of their monthly repayments. For those due to pay back a couple of hundred dollars a month, this might seem like a meagre sum – but if you consider borrowers that were expected to pay $1,000 to $2,000 every four weeks, you’ll begin to see why people still feel concerned.

In those days, borrowing markets were still finding their footing and because of Australia’s lacking economic growth just over twenty years ago, the only way for banks to make a profit was by implementing very high interest rates. Thankfully, a lot has changed since then and after seeing the impact that those types of instances had on home owners, they set about creating a new wave of legislation.

How have things changed?

In 2016, and since just under a decade ago, all banks and their interest rates are now dictated by the central financial agency in the country – the Reserve Bank.

This institution, unlike its lesser peers, is responsible for ensuring that all sectors throughout the country are well-funded and that any complementary funding goes to the right government industries if and when needed. As the government now has control over where cash is spent, which types of products are imported and how to make the most of the value afforded by exported goods – mortgage broker melbourne is now considered one of the most stable in the world.

As a result, those lenders that operate within the confines of the financial industry are able to dictate their own interest rates – 95% of which are now at an all-time low. When compared to rates from just two decades ago, it’s amazing to see the difference in percentages. These days the majority of lenders in Melbourne are offering rates of between 1.50% and 2% at the very maximum – making now an ideal time to invest in a new home.

For as long as the central bank is able to govern the financial practices within the lending industry, rates are expected to stay as low as possible for as long as possible.

If the condition of the market ever changes, then the Reserve Bank will consider the funding that it has available and then channel this cash into the most prominent of industries; namely the banking sector. What this means is that if things get better than they already are on an economic scale, then borrowers will stand to benefit further. If they deteriorate, then measures are now in place to secure loans and provide financial assistance.