With a handful of home loan providers already raising interest rates and others predicting rate hikes later this year, how will homeowners be impacted?
Despite the RBA’s cash rate, which is likely to remain stable this month, some home loan lenders have announced they are increasing rates on a range of mortgages in response to increased funding pressures.
Home loan rate changes: The numbers
Suncorp’s owner-occupier home loan rates increased by between 0.05% and 0.12% between March 27 and April 2, 2018. In that same period, investor loans rose by between 0.08% and 0.12%. MyState hiked rates that week on a range of investment loan products by 0.1%. AMP Bank, Macquarie Bank, and provider The Rock also raised rates on several home loan products.
Martin North, principal of Digital Finance Analytics, an independent financial consultancy, told the Australian Financial Review that rate hikes by lenders can be put down to increases in lending costs.
"The RBA decision to increase, or hold, rates is irrelevant, the issue is what's happening in the wholesale markets," North said.
Lenders are scratching their heads about how to balance rising costs, which will discourage borrowers, with the need to offer discount deals and build their loan books."
The bank bill swap rate, which impacts how much it costs for lenders to provide loans, has risen steadily over the past five months, which means higher interest costs for lenders' wholesale and retail funding portfolios.
What do the rate changes mean for homeowner?
But with only a small number of lenders choosing to increase rates, homeowners don’t need to start worrying about huge increases in interest rates and mortgage repayments just yet.
Banks with large deposit holdings are less reliant on overseas' funding and have greater pricing flexibility for investor and home lending than smaller lenders – which means borrowers with the Big Four banks and other major banks shouldn’t have too much cause for concern.
The RBA cash rate – one of the most significant determinants of interest rates – is also likely to remain unchanged in the near future according to 97% of analysts surveyed by finder.com.au. If that’s the case, the rate will have remained unchanged since a 25 basis point rate cut in August 2016, when it dropped to a record low of 1.5%.
However, the majority of experts surveyed also believe that the next cash rate move will be an increase, which could signal an uptick in interest rates over the long term.
As such, homeowners should keep an eye on cash rate movements and rate changes over the coming months and start looking at options such as refinancing at a fixed rate if further rate hikes begin to eventuate.