Lender rates could go up by 20bp, despite hold

by Rebecca Pike06 Jun 2018

Experts are warning that lenders could increase interest rates by as much as 20 basis points, despite yesterday’s decision by Australia’s central bank.

The Reserve Bank of Australia announced it would keep the cash rate at 1.50% yesterday, after 20 consecutive meetings at the same rate.

Managing director of 1300HomeLoans, John Kolenda, said while official interest rates have stayed at 1.5% for almost two years, mortgage holders could be hit with another round of out of cycle rate increases from lenders. He put this down to cost of funding pressures and regulatory requirements.

He said, “These increases are already starting to flow through and we could see upward rate movements of more than 20 basis points.

“If the lending environment wasn’t complicated enough, the spotlight on the banks from the Hayne Royal Commission into the financial services sector is making home finance more difficult, particularly through tighter controls on customer living expenses which has resulted in borrowing capacity for consumers dropping 10 to 30% over the past quarter.”

Steve Mickenbecker, group executive, financial services, at Canstar, said the company had seen lenders increasing rates already.

He said, “Wage growth has stayed stubbornly flat and until wages move up, the RBA will be concerned about passing on a virulent strain of mortgage stress this winter.

“While the RBA stands still, our research shows over 50 lenders have moved rates since January. Rates displayed on Canstar now start at 3.39%, and with over 4,000 home loans listed there is plenty of choice for borrowers.”

Governor of the RBA, Philip Lowe, said in his statement, “The housing markets in Sydney and Melbourne have slowed. Nationwide measures of housing prices are little changed over the past six months, with prices having recorded falls in some areas. Housing credit growth has slowed over the past year, especially to investors.

“APRA's supervisory measures and tighter credit standards have been helpful in containing the build-up of risk in household balance sheets, although the level of household debt remains high. While there may be some further tightening of lending standards, the average mortgage interest rate on outstanding loans is continuing to decline.

“The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.

“Taking account of the available information, the board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

 

Related stories:
RBA announces June cash rate
"Long odds" against RBA rate move
RBA should "maintain vigilance" with rates

 

COMMENTS

  • by David 6/06/2018 10:46:12 AM

    CBA only need to increase their rates by 0.175% across their home loan book to cover their $700 million fine in 12 months. Even less if they hit business lending as well.