Quote Originally Posted by Cool Bear View Post
So we are being hit both ways! RAR will definitely drop. But with Reserve bank interest rate approaching zero, it is rather expected.
I think that's what is driving the interest rates drop from a commercial point of view. I am guessing that most lending institutions (including banks) have had to drop their rates. And (for those of use with mortgages) while we are happy for our mortgage rates to drop down to 3.45% or thereabouts, this also means that borrowing rates across the board are also dropping.

Because as Cool Bear says, a drop in the interest rate for a particular grade doesn't mean that it has less chance of default as before, comparatively. A similar chance of default percentage now corresponds to a lower interest rate, so we lenders are being ask to risk more for the same return.

Interestingly, Harmoney also claims that they now have more than 5 years worth of data regarding risks and are now able to fine-tune their expected default rates, risk analysis etc. That may be true also?