Hopes for bank rate cut dashed


ANZ Bank (ASX: ANZ) has dashed any hopes of mortgage holders that the banks would cut rates outside the Reserve Bank’s (RBA) monthly rate decision.

In an announcement today, ANZ decided to leave its variable rates for Australian retail mortgages unchanged.

ANZ CEO Australia Phil Chronican said, “We have seen some easing of new funding costs from both wholesale markets and domestic deposits over recent months which has taken some of the pressure off what had been a relentless rise in funding costs since late 2007.”

He added, “Combined with other factors however, the range of ongoing pressures saw the ANZ Group’s net interest margin fall slightly in the first quarter of our 2013 financial year.

In other words, despite wholesale funding costs halving and deposit costs easing, the difference in its borrowing costs and what it earns on lending those funds out is narrowing. In ANZ’s February trading update, the bank identified lower returns on retained capital due to the low interest rate environment, and asset pricing pressure as contributing to the slight dip in net interest margin.

It seems likely that the other big banks, including National Australia Bank (ASX: NAB), Westpac Banking Corporation (ASX: WBC) and the Commonwealth Bank (ASX: CBA) will be feeling the same pressures and are therefore unlikely to cut variable mortgage rates. That’s unless the RBA cuts the official cash rate, and even then, the banks may not pass on the whole cut.

Foolish takeaway

Mortgage holders may now have to actively consider smaller, cheaper lenders, rather than wait for the big four to cut rates for them. Several lenders already offer lower interest rate mortgage loans than the big four. Borrowers could save thousands over the life of the loan by switching.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

OUR #1 DIVIDEND PICK FOR 2016...

Forget BHP and Woolworths. This "dirt cheap" company is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for hungry investors, including SMSFs, this ASX company could be the "holy grail" of dividend plays for 2016.

Enter your email below to discover the name, code and a full investment analysis in our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2016.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.