The week is off to a rip-roaring start with old news about a potential housing crisis and the mortgage ‘lazy tax’ suddenly new again.
Various headlines might have given a different impression, but the OECD is not forecasting a calamitous housing market collapse here. It expects Australia to successfully manage a rare “soft landing”.
And there is absolutely nothing new about the Australian Competition and Consumer Commission discovering banks discount mortgage rates to attract new customers. The ACCC is years late to the game.
Yet there is some insight to be had behind the non-news headlines.
For example, a speech by Reserve Bank deputy governor Guy Debelle last week now makes more sense. Dr Debelle created some headlines himself by mentioning that the RBA could cut interest rates if the economy needed it and that quantitative easing also would be an option if required.
There is zero news is those statements – the RBA is always prepared to use its blunt monetary policy weapon as the economy requires.
As IFM Investors chief economist Alex Joiner tweeted “it was a statement of the #RBA‘s potential responses to a downturn not aimed at foreshadowing a shift in policy”.
Further – this was an Australian Business Economist event, there were plenty of well known economists in the audience and none I spoke to afterwards drew an overly negative conclusion from the speech…
– Alex Joiner (@IFM_Economist) December 10, 2018
Nonetheless, it has been a while since a top RBA mandarin spelt out that reality.
I can’t help suspecting Dr Debelle was “getting in some retaliation first” ahead of the OECD report this week recommending authorities be prepared to act in case the housing market correction turned into something much worse.
Of course the RBA is prepared. The federal government, on the other hand, who knows?
As for the ACCC’s ‘discovery’ that banks discount loans to attract new customers, the RBA detailed the discount more than a year ago.
What’s more, I’ve been writing and broadcasting for years about the ‘lazy tax’ Australians pay on their mortgages, insurance and utilities because they aren’t prepared to check the market and shop around.
The latest ACCC report is a rather political document commissioned by politicians – it was part of the government’s effort to look tough on banks when it was avoiding a royal commission.
It seems the ACCC is well capable of sniffing the political wind and is rattling its sabre given the failures of ASIC and APRA to do their jobs in keeping the banks honest.
However, it is reasonable to ask just how far the authorities and government really want to go in setting pricing rules in what is a competitive market for home loans.
Leave the emotional word ‘banks’ out of it for a moment.
Is it reasonable for a business to offer a discount to attract new customers? Businesses across the spectrum are aware of the ‘cost of acquisition’ – what it takes to sign up a new customer whether through marketing, ‘sales’, introducer incentives or, yes, discounts.
We see it frequently with credit card deals, so many frequent flyer points, interest-free periods, a free pencil, whatever. There are hordes of online wine retailers offing fat deals to enrol you for regular dozens.
Yes, it is annoying to be a loyal customer and think you’re not being rewarded for that loyalty. It’s therefore up to the customer to seek a matching discount or go elsewhere.
For government commissars to start ruling on how a business might conduct its marketing is more than a little rich. It’s also rather ironic for a Liberal government with its habit of professing belief in free markets.
There are multiple comparison sites that highlight what mortgage rates might be available. Everyone has the right to pay the lazy tax if they so please.
The one complication is that some borrowers whose circumstances have changed can now find their lender tougher to deal with and unwilling to refinance at a better rate, knowing that the customer could have trouble getting a loan from another institution.
Reasonable lending care and checking has turned into something like a full-scale financial colonoscopy.
For prudential authorities and individuals, it’s always wise to be careful about what you wish for.