Home loan rates to rise up to 50bps, warns industry veteran

by Julia Corderoy07 Oct 2015
Home loan rates could increase by a further 50 basis points, despite speculation of a Melbourne Cup day rate cut, one industry expert has warned.

Whilst the Reserve Bank chose to keep rates on hold at 2% yesterday, 1300HomeLoan managing director John Kolenda says the market could see further interest rate relief before the end of the year, possibly as soon as Melbourne Cup day. However, the increased cost of funding for banks – which has already seen some interest rates rise – means brokers and homebuyers should expect more “out of cycle” rate hikes.

“The RBA has some history in playing a part on Melbourne Cup day and we may see the central bank cut rates once more on the first Tuesday in November or before the end of the year,” he said.

“The decision of many lenders to raise interest rates for investment and interest only loans as well as revised borrowing conditions has already had an impact on many borrowers with more expected.

“We are likely to see increases from 25 to 50 basis points in out of cycle movements by many banks as they adjust their pricing to accommodate additional costs. They face a balancing act between managing home loan growth and shareholder returns.”

Rate rises have only affected investment and interest-only home loans so far, but Kolenda says it is likely to become more widespread. 

“Over the next six to nine months we may see increases in rates across the board with the pressure on the major banks to meet APRA measures by June next year. This will likely see rates increase for owner-occupied in the future.”
 

COMMENTS

  • by Richard Simmons 7/10/2015 9:51:11 AM

    No problems with so called industry experts talking about where they see the interest rate cycle moving but this article has provided no factual basis or reasoning for the potential rate increases.

    The recent rate increases by most lenders were driven by APRA guidelines to reign in the rate of lending growth in those segments, and had far less to do with rising cost of funds. In fact, many lenders are commenting on being in a stronger position on lending margins than in comparison to the recent 2-3 years.

    Most lenders took the recent APRA situation as a chance to increase the rates on their existing loan books by 25 to 30 bps on investment or interest only lending purely to take the heat out of those segments, so that hardly creates immediate margin pressure does it.

    No problems with industry experts commenting on where they think the market is heading but headlines like "loan rates to rise by 50bps" really need to be seen for what they are, personal opinion.