Interest Rate Cuts Not Passed On To Those Who Need Them

West Australia specifically set up Keystart to assist first-time buyers who may not be able to get a mortgage from a traditional lender. Why then is Keystart rorting those people?

The Reserve Bank has just dropped interest rates 0.75% this month but KeyStart is only passing on 0.5%. Keystart currentlt has an interest rate of 7.26%  but the big banks have rates as low as 7.07%. What gives - remember this is a government agency! It has a credit rating of AAA because it is backed by the WA government!

According to CEO John Coles:

Keystart held on to some of the Reserve's November interest rate reduction to guard against a possible rise in defaults from a slowing economy and to cover a rise in funding costs.

He wouldn't, of course reveal how those funding costs increased.  The AAA rating that Keystart enjoys that is should be paying less for money than the big banks. With the State Government calling for all lenders to pass on the full decrease in interest rates its pretty embarassing that its own state agency hasn't.

The bureaocracy moves slowly too: some banks have already reacted to last week's annoucnement of a fruther 1% cut in the Reserve's rate, but KeyStart's Board won't be meeting to discuss that until later on this month. Mr Coles isn't making it sound likely though.

The reality is that Mr Coles and his fellow directors are playing at being in business. They are state backed so that they can lend to people who can't get loans elsewhere. They like to think they have the real-world funding and other risks of the big banks - but they don't.

Maybe it would be better to staff organisations like Keystart with people from the social services or volunteer sectors rather than would-be bankers?