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According to CoreLogic analyst Cameron Kusher, recent out-of-cycle rate rises on owner-occupied mortgages could place further downward pressure on the housing market, following a decline in demand from investors triggered by macro-prudential regulation and tighter credit conditions.
Mr Kusher’s comments follow moves by Commonwealth Bank (CBA) and ANZ to lift interest rates on their owner-occupied home loans by 15 and 16 basis points, respectively.
The two banks, along with Westpac, which increased rates by 14 basis points a week earlier, attributed their decisions to a “sustained rise in wholesale funding costs”.
The majors succumbed to funding pressures following several months of pricing changes from smaller lenders, with NAB the only big four bank to refrain from repricing its products.
“From a housing market perspective, the timing of the announcement of higher interest rates is an interesting one,” Mr Kusher said.
“After many years of strong value growth, Sydney and Melbourne housing is now well embedded in a downturn.”
Mr Kusher continued: “Tighter credit conditions, higher mortgage rates for investors and interest-only borrowers and reduced affordability have already led to the falls of 5.6 per cent from the peak in Sydney and 3.5 per cent from their peak in Melbourne.
“This has occurred so far without higher interest rates for owner-occupiers paying off principal and interest; however, that is about to change.”
The CoreLogic analyst also noted the timing of the rate increases, stating that the changes have been announced amid the start of the “spring selling season”.
Mr Kusher said that while, typically, lenders reduce rates in spring to entice borrowers, rising funding costs have left them with no choice but to increase rates.
“Higher mortgage rates have already driven a slowing of demand for investors over the past year. Although the magnitude of the mortgage rate increases announced is fairly small, it is likely that the higher mortgage rates will impact on housing market sentiment.
“[It] may end up further exacerbating the declines which are already occurring in Sydney, Melbourne, Perth and Darwin and the slowing of value growth being experienced elsewhere.”
Mr Kusher concluded: “Overall, this move seems likely to lead to a continuation of the currently weak housing market conditions over the coming months and may weaken the market further.
“From the lenders’ perspective, clearly they realise that the housing downturn is becoming entrenched and they are doing what they can to maintain profitability in the face of lower mortgage volumes.”
[Related: More majors pull interest rate trigger]
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