More out-of-cycle home loan rate hikes to come: RateCIty
Staff reporterDecember 7, 2020
While the RBA are likely going to leave official interest rates on hold when they meet next Tuesday, it hasn’t stopped lenders hiking rates out-of-cycle.
Heritage Bank is the most recent to hike rates, joining Bank of Queensland, AMP, Auswide and IMB in raising variable home loan interest rates over the last week.
The increased cost of funding has put the squeeze on banks’ profit margins and some lenders are choosing to pass some of the cost onto borrowers.
RateCity spokesperson Sally Tindall said if the bank bill swap rate (BBSW) continues to rise we will see more lenders joining the party.
“Banks are weighing up whether they can wear the rising costs, or hike rates and risk customer backlash."
“After months of negative press generated by the Royal Commission, our banks are treading a fine line."
“We’ve seen a handful of smaller lenders hike rates, but so far nothing from the big four."
"It will be interesting to see how long they hold out.” Sally stated.
In the decade prior to 2008, Australia’s major banks moved their variable rates in line with the cash rate.
When the RBA made a cut, so did the banks and by the same amount.
As a result, the margin between the RBA cash rate and the major banks’ standard variable rates was consistently 1.8%, while the margin between their discounted variable rates was roughly 1.2%.
But as the global financial crisis unfolded, the costs of funding started to climb.
In January 2008, the major banks made their first out of cycle rate hike in almost nine years, sending shock waves through the public and resetting the industry standard for how interest rates are set.
Over the last decade banks have been making their pricing decisions based on a wide range of competing factors, leading to an ever-growing gap between the cash rate and the banks standard and discounted variable rates.
