Rate cut is coming but home loan rates will rise, says industry leader

by AB18 Nov 2015
Subdued global economic growth is the major challenge to Australia which could influence the Reserve Bank to cut the cash rate, according to one industry leader.

According to 1300HomeLoan managing director, John Kolenda, the slowdown in China and the rest of Asia, in particular, remains the big concern for the RBA and a strong argument for cutting rates next month and into 2016.

“There are other reasons for the RBA to reduce the cash rate from its current record low of 2% in the months ahead,” Kolenda said.

“Mortgage holders have already seen their interest rates go up in recent times as the major banks and other lenders have been increasing variable interest rates from 15 to 49 basis points due to additional compliance and provisioning costs.

“The Sydney and Melbourne property markets, the only cause for concern domestically for the RBA to consider actually lifting its cash rate, is slowing and is now no longer a reason to keep rates on hold.”

In addition, the continued falls for the Australian dollar, weak commodity prices and subdued consumer confidence and business investment would also weigh on the RBA. However, Kolenda says the market shouldn’t expect to see it translate to lower home loan rates.

“Of course if the RBA does reduce its cash rate going forward it remains to be seen how much of the RBA’s rate reduction is passed on by lenders,” Kolenda said.

“The RBA’s decisions could be negated by the banks adhering to APRA regularity requirements that will increase the cost of providing mortgages and make them the strongest in the world.

“Further rate relief from the central bank may also not be passed on in full by lenders and we may see increases in rates across the board due to potentially increased funding costs and pressure on the major banks to meet the APRA requirements by mid-2016.”
 

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