Big four banks expected to raise rates out of cycle

Economists believe that the big four banks will continue raising their interest rates regardless of the fact that the official cash rate has been held by the Reserve Bank at the record low of 1.5 per cent for the past two years, according to a new study by financial services comparison site finder.com.au.

Fifty-eight per cent of survey respondents said that the major banks will follow the lead of non-major banks and non-bank lenders in lifting their interest rates out of cycle.

In recent months, several non-major lenders — including Macquarie Bank, AMP, ING, Bank of Queensland, Heritage Bank and Auswide Bank — announced increases to their mortgage rates, with most attributing their decision to a rise wholesale funding costs.

Conversely, ANZ Bank earlier this month bucked the trend, announcing that it was cutting its owner-occupied principal and interest (P&I) rate on its basic home loan by 34 basis points to 3.65 per cent, while reducing some fixed mortgage rates by up to 24 basis points. It also slashed its rates for investor P&I loans by up to 13 basis points.

Commonwealth Bank similarly cut some of its fixed rates by 10 basis points.

Despite expecting rate hikes, 35 per cent of respondents, which include representatives from the banks, believe home owners should fix their rate.

On the other hand, Graham Cooker, insights manager at finder.com.au, suggested that mortgagors take action and chase a better deal with another lender or a better structure with their existing lender as the market could become “more turbulent”.

In a separate finder.com.au survey of 2,011 consumers, 38 per cent of mortgagors said that they’re contemplating fixing their rate in the next 12 months, mostly to protect themselves from rate rises, but also for the sake of certainty.

While demand for fixed rate mortgages had fallen to a 21-month low of 21.1 per cent in May, according to the latest Housing Finance data from the Australian Bureau of Statistics (ABS), broking franchise Mortgage Choice suggested last month that fixed rates could be making a comeback.

Mortgage Choice’s data showed that fixed rate home loans accounted for 18.67 per cent of all loans written in June 2018, up marginally from 17.93 per cent in May.

Mr Cooke further noted that funding costs are behind the out-of-cycle rate movements.

“With no cash rate movements for two years now, and funding requirements for the larger banks becoming more stringent, the pressure on lenders to increase home loan interest rates is real,” the insights manager said.

According to the finder.com.au survey, predictions of a cash rate rise are being pushed further into the future, with only 30 per cent of respondents expecting there to be an increase before July 2019.

The comparison site found that 28 per cent of respondents expect the next move to be a decrease in the official cash rate, up from 16 per cent last month.

“The sentiment shift may be due to dipping property prices and concerns about household debt,” Mr Cooke said.

[Related: Increasing housing supply could improve affordability]

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