Economists were predicting a 0.3 percent increase in home loans but total finances for housing for October went up by 2.2 percent to $20.901 billion. These numbers reflect the status of the housing market before the Reserve Bank of Australia increased the official cash rate from 4.5 to 4.75 percent after six months of non- movement.

In the mean time, economists predict that the official cash rate will not move for a while but upward inflationary pressure due to a stronger economy can push up the cash rate again. The figures for October are decent but it does not factor the latest RBA cash rate increase yet and it is more interesting to see the figures for November.

Nonetheless, October’s figures are a little above expected though first home buyers only comprise of 15 percent of the total home loans and it impossible that this percentage will rise given that the First Home Buyers Grant has ended and interest rates have increased. Thus, it is expected that investors will take advantage of the market’s situation.

Figures for October were better than expected but the increase reflects stronger conditions in the labour market as well and the October figures is a positive sign before the cash rate increase kicked in.

RHG raised its standard variable rate by 39 basis points to peg their interest rate at 7.88 per cent. A report by the Sydney Morning Herald states that this home loan rate is higher than the other 110 Canstar Cannex-rated lending companies. This development comes a week after a NSW Supreme Court ruling revealed that RHG was in default with a creditor’s loan repayments.

The Morning Herald also reports that an interest rate that high shows the higher cost of home loan funding for non-bank lenders since the financial crisis.

In 2007, RAMS was sold to Westpac which is also known for high interest rate hikes. However, Westpac chairman Ted Evans stated earlier this month that these hikes are important to match higher funding costs. Also, Evans stated that having various interest rates from different banks gives customers the chance to compare the rates and find what is suitable for them.

He also added in an interview by the Australian Associated Press that market competition signifies that the scope of the company’s power is not abused and that the said competition is very much alive.

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This statement was stated in an economic note that was released in Canberra. Swan added that the Rudd administration knows the need to make Westpac, Commonwealth Bank and ANZ feel the pressure of competition after the said banks raised their home loan mortgage rates more than the official cash rate.

With the RBA raising their interest rate to 3.75 per cent, Commonwealth Bank raised its interest to 6.61 per cent while ANZ and Westpac raised their rates to 6.66 and 6.76 per cent respectively. Meanwhile, the National Australia Bank followed the RBA’s 25-basis-points increase to bring their interest rate to 6.49 per cent.

With the collapse of the U.S. subprime shutting down a number of global securitization markets, the building societies, credit unions, home loan founders and smaller lending companies in Australia have fought for funding and market share. But though their competition might be eroding, the Big Four’s potential mergers with its smaller competitors are likely to be disregarded.

Competition and Consumer Commission Chairman Graeme Samuel stated that lesser competition means that the ruling companies can charge for higher prices. Because of which, Samuel said that potential mergers will be thoroughly examined.

With their intention of bringing competition, the government purchased $8 billion of the mortgage-backed bonds of the smaller lenders. Swan said that they have been buying mortgage-backed residential properties since November to increase the competition within the home lending industry.

This policy will ensure a steady flow of funds for the smaller lenders and greater competition against the big banks. According to a data by the Australian Prudential Regulation Authority, the Big Four had total deposits of A$861.6 billion by the end of August. This figure is triggered by the folding of smaller lending firms that have succumbed to the pressure of the financial crisis.