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Everyone sighed with relief at the Reserve Bank’s decision last week to leave the official cash rate at 7.25 per cent and normally that would be good news for borrowers. However, lenders have shown in recent months – and weeks – that they’re prepared to lift rates independently of the central bank.

Flats loan rates are now determined by the cost of raising funds on the global credit markets, where money has become much more expensive since dodgy US housing loans were bundled up and sold to investors.

“The connection between the Reserve’s official cash rate and the cost of funding for the banks hasn’t quite broken but is almost broken,” Dowling says.

Even if the Reserve Bank remains on hold, market rates may still move higher. What’s worse, there’s no guarantee that once the cycle turns and the Reserve starts to cut rates that lenders will follow.

In Britain, a recent Bank of England rate cut wasn’t passed on uniformly, with new borrowers and those coming off fixed-rate loans reported to have missed out on the savings. Asked what would happen here in the event of an official rate cut, Steve Blinkhorn, the head of home loans for St George Bank, says in the past the bank has been quick to pass on any rate cuts. He says, though, that can’t be guaranteed “in the current environment”.

Dowling says the main hope for borrowers is the banks’ “manic obsession with market share”, which should cap potential rate increases as they fight over customers.

BankWest’s Vivian says moving independently of the Reserve “is a very difficult decision, and we spend an awful lot of time debating how much you move while trying to balance the impact on customers. All of the banks have been forced to move more than we would like.”

Cheers guys & think about that…