How far can the gap between RBA rates and bank rates spread? Is the cost of funds truly growing at the same pace as bank rates are moving upwards? Will the RBA or other governing bodies to anything to stop this if it is actually just profiteering?

Rob

You've touched on a very topical issue that has been talked about for many years. I've read a lot of papers from leading economists and others that have explained why the banks lending rates don't move lock step to the cash rate. The most uniform explanation amongst them all seems to be that the lending rate is quite often higher than the cash rate due to the banks assessment of risk in the market, and competition.

Clearly at the moment the banks would be assessing that the property market is at the top of the cycle and this would be one explanation for their rates being higher. Even more clearly though a lack of 'real' competition in the market with the big 4 dominating the lending market I would suggest is an even bigger factor.

If your bank have increased rates ask them the question directly and if you are not happy with the response shop around and see if you can get a better deal - I have done just that recently and went back to my bank and they were only too happy to change the rate and throw in some other 'benefits' for staying with them.

Whilst we need to accept that banks will set their rates for a number of reasons - that doesn't stop us as a consumer from always seeking a better deal.

All the best,

Hi Rob,
Good question, I don't think anyone really knows. From the commentary going around at the moment I would say the RBA and the government are both quite happy to see lenders increasing rates and requirements for investment lending so they won't stop any of that.
Competition for new loans will ensure that banks don't raise owner occupied rates any more than they have to.
Hope that helps a little bit?
Cheers
Scott