With home lending at it's lowest level for 20 years, banks are under pressure to reduce their home loan interest rates. New mortgage approvals dropped 25% in the first half of this year, leading many to believe that banks may pass on any benefits from Reserve Banks forecasted interest rate cuts to the customer. It was previously thought that banks would not lower home loan interest rates, even if the RBA lowered official rates next month.
But the grim figures showing a steep decline in new mortgage approvals, may now force banks to carefully consider their own rates.
Such suggestions were given added weight yesterday by the ANZ chief economist, Saul Eslake, who indicated the pressure on the bank's finances caused by higher funding costs in international credit markets might see them cut rates by less than the 0.25 of a percentage point reduction expected in coming months. British banks had already pursued that line while their Australian counterparts created a precedent by raising rates by as much as 60 basis points - 0.6 of a percentage point - above the RBA's increases of one full percentage point since late last year.
The leading lenders yesterday responded coolly to Mr Eslake's proposition, though in their official reactions they kept their options open as to the timing and likely size of any cut that would follow an RBA move downwards.
Other leading lenders - National Australia Bank, Commonwealth, Westpac and St George - have commented that any decisions will have to wait for the RBA.
Recently British banks have cut rates by 0.25 of a percentage point, while Australian banks have been raising their rates by 0.6 of a percentage point.
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