A wave of rate hikes about to hit brokers.
Funding costs and regulatory pressure will drive rates upwards and cut discounts, regardless of today’s RBA call
85% of brokers think there will be further out-of-cycle rate increases, regardless of today’s cash rate decision by the RBA. This was the finding of broker listing site Hashching, who surveyed their brokers ahead of today’s rate decision. Whilst almost all brokers believed the RBA will keep rates on hold today, 92% believed smaller lenders will no longer offer rates below 4% to investors, although owner-occupiers will still be able to access such rates.
Industry leaders also see further out-of-cycle rate rises on the way, Deloitte’s recently released Mortgage Report 2017 suggests. Deloitte’s panel, which includes AFG, NAB, Homeloans and Corelogic amongst others, voted 9:1 that banks would focus above all on profitability over book growth, and that lenders would look to balance net interest margins. Meg Bonighton, the general manager of home lending at NAB, commented “the cash rate is but one of many factors that influence how we set rates…we need to make sure we build the strength and safety of the bank in long term”
Less than 0.8% – average interest rate discount expected by industry leaders in 2017, according to Deloitte’s Mortgage Report
Political pressure was unlikely to encourage banks to clearly align rates with cash rate movements, the panel also noted. In fact, according to ex-NAB broker boss Steve Weston, regulators could end up restricting the banks’ ability to offer new borrowers cheaper rates than existing borrowers. “If they want to change SVRs out of step with RBA cash rate changes, they will probably need the blessing of ASIC first. At least that is what has happened in the UK.”
This scenario is already playing out, with APRA warning banks last week to “ensure there are strong scrutiny and justification of any instances of interest-only lending at an LVR above 90 per cent” and consider adding extra oversight of such borrower applications. ASIC announced yesterday that they will be monitoring broker-initiated interest-only lending, to ensure borrowers haven’t diverted away from cheaper P&I lending towards more expensive interest-only options.
(source: mortgage brokers Australia)
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