“When official rates dropped by 50 basis points earlier this year the vast majority of borrowers did not change their repayment schedules”, says Michael Workman, a senior economist at Australia’s largest home lender CBA.
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Financial markets have begun to price in a greater chance of a cut in the cash rate by the Reserve Bank to help counter the potential move by retail banks. Neither EconoTimes nor its third party suppliers shall be liable for any errors, omissions or delays in content, or for any actions taken in reliance thereon.
The chief of Westpac’s consumer bank, George Frazis, said the increase was a response to the bank being required to hold 50 per cent more capital against mortgages.
Statutory profit for the year rose six per cent from last year to $A8b.
Meanwhile, the Commonwealth Bank says it is yet to decide “We’ve made no decision on our rates, which remain on hold”, a statement from the Commonwealth Bank said.
Raising capital lowers the profitability of bank lending, putting pressure on banks to pass on a few of the costs to customers where possible.
“In our view, the announcement by a major bank of an out-of-cycle 20bp rate hike – for investor and owner-occupier loans – all but seals the deal for a November rate cut from the RBA”, Macquarie Securities economist James McIntyre said.
However, Mr Morrison said he had received advice that changes announced by regulators earlier this year would only increase the cost of funds by around 0.10 to 0.15 percentage points, compared with Westpac’s 0.2 percentage point rate hike.
In total, the big four banks have raised more than $20bn in 2015.
While the Australian dollar fell half a United States cent to US72¢ and interest rate traders were busy pricing in a 1.5 per cent cash rate by the second half of 2016, it might not be the no-brainer that markets are suggesting.
It comes as all banks raise new capitals to meet the new regulations.
The bank said the new headline owner occupier variable rate would increase to 5.68 per cent with the headline residential investment property variable rate increasing to 5.95 per cent per annum. For almost two weeks, the currency has enjoyed a relentless rally, with Monday marking the biggest gain of the year and the currency’s third longest consecutive gain since floating in 1983, according to spread better IG.
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So while the RBA has still has room to lower rates, the banks do not, and in all likelihood home loans have already hit the bottom and the only direction from here is up.
