Mortgage rate hikes are coming

by Julia Corderoy05 Feb 2016
Brokers should expect the major banks to continue hiking mortgage rates this year, despite talk of a further cash rate cut.

On Tuesday, the Reserve Bank of Australia (RBA) kept the cash rate steady at 2% in its first monetary policy board meeting for 2016. However, the minutes of the board meeting made clear the central bank is still maintaining an easing bias, even hinting at further rate cuts this year.

“Over the period ahead, new information should allow the Board to judge whether the recent improvement in labour market conditions is continuing and whether the recent financial turbulence portends weaker global and domestic demand,” the minutes stated. 

“Continued low inflation may provide scope for easier policy, should that be appropriate to lend support to demand.”

But despite the clear easing bias, eChoice’s national sales manager, Blake Buchanan, told Australian Broker there will be no surprises if and when some of the majors announce further out of cycle rate rises in 2016 in order to meet their international capital requirements – especially given the precedent in 2015.

According to Buchanan, brokers should prepare themselves to take advantage of this.

“The amazing thing about the competitive Australian mortgage landscape is that brokers are in a prime position to really capitalise on any movements in the market,” he said.

“Today’s borrowers are now more conditioned to vote with their feet and savvy brokers already recognise this presents opportunities for them to offer clients the benefits of sharper pricing, which is currently under and around 4%. We’re already seeing many of our brokers prepared for such rate movements as an opportunistic element of their business activity.”

To take full advantage of this, Buchanan recommends brokers ensure they have a dedicated customer communication program in place.
“Having ongoing contact already established ensures brokers can react quickly when rate movements occur and provides a platform to offer a broader proposition for the borrower. If that borrower is disenfranchised, it’s a perfect time for the broker to review other financial arrangements with the client.”
Buchanan also expects this year will see more focus on fixed rates versus variable rates.
“What we are seeing at the moment is growing interest in the fixed rate loan market with brokers being able to offer rates from a range of lenders in the low to mid four band, with some majors even offering below 4%,” he told Australian Broker

“So with some commentators mooting 10-15 basis point rises by the majors in 2016, we expect that fixed rate environment to have growing appeal.”