People buying a home had the expectation that interest rate rises would be predictable. They would only occur when the Reserve Bank of Australia announced the reasons for such action.
All that has now changed. The National bank of Australia has announced that it will increase interest rates on it's home loans independently. The rise is small - probably only about twenty dollars a month extra for most borrowers - but the principle involved is significant - and it is expected that the other banks will follow suit within days.
Basically, the only reason for this increase - is greed !
There are problems in the US with sub-prime and " Low-Doc " home loans leading to defaults and this has reduced the money flow into the housing sector, leaving many non-bank lenders to cut back on financing homes.
This is having a flow-on effect in Australia - and the banks are sensing blood in the water - and going for the jugular. They reason that uncertainty will cause many people to return to the banks for their home loans.
The problem is that if these greedy banks push rates too high in their never ending search for super profits they could very easily send the Australian economy into recession.
Recession occurs when the market panics - and in most cases there is simply no real reason for a recession. The " herd mentality " takes over. People snap their wallets shut and reduce spending - and suddenly the media is talking gloom and doom - and so the spiral downward intensifies.
Two questions need answers.
How far will the banks push their greed ?
And what will the Federal government do to ensure interest rate stability ?
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