The RBA hasn’t moved official interest rates since August 2016.
This week Australia’s fifth largest home loan lender ING has hiked interest rates for existing customers by ten basis points (0.1%.)
ING joins Heritage Bank, Bank of Queensland, AMP, Auswide and IMB in raising variable home loan interest rates over the last week.
As the cost of funding puts a squeeze on banks’ profit margins, some lenders are choosing to pass some of the cost onto borrowers.
While the RBA sets the overnight cash rate, financial markets determine the real borrowing costs for the banks .
Will the big banks follow?
Australia’s big four banks banks may be forced to impose “out of cycle” mortgage rate hikes as global interest rates push higher.
There is speculation they cannot afford the political fallout of raising interest rates while the banking royal commission is underway
RateCity spokesperson Sally Tindall said all eyes are now on Australia’s big four banks who’ve kept a lid on rate hikes so far.
“Banks are weighing up whether they can wear the rising costs, or hike rates and risk customer backlash.
“The Royal Commission has acted like a cop on the beat keeping a lid on rates – but for how long?
“After months of negative press 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.”
|Out-of-cycle rate hikes – variable mortgages|
|ING||0.10%||Owner-occupier home loans||3-Jul|
|Auswide Bank||up to 0.13%||Owner-occupier loans up by 0.05%; investor loans and line of credit loans up by 0.13%||27-Jun|
|AMP Bank||up to 0.40%||All owner-occupier interest-only loans for new customers only up by 0.40%||25-Jun|
|IMB Bank||0.08%||Standard variable rates for investment & owner-occupiers||22-Jun|
|Heritage Bank||0.05%||Selected variable home loan products.||2-Jul|
|BOQ||up to 0.15%||Owner-occupiers principal and interest up by 0.09%; owne- occupiers interest-only up by 0.15%; investors principal and interest 0.15%; line of credit 0.10%||2-Jul|
|Suncorp||up to 0.12%||Owner-occupier principal & interest up by 0.05%; investors P&I up by 0.08%; interest-only up by 0.12%||28-Mar|
|ME Bank||up to 0.16%||Owner-occupier principal and interest up by 0.06%; investor P&I up 0.11%; interest-only up by 0.16%||19-Apr|
|MyState||up to 0.09%||Owner-occupiers and investors up 0.09%||28-May|
History of out-of-cycle rate hikes
Until the global financial crisis, retail banks tended to raise or lower their lending rates in line with the Reserve Bank’s interest rate cycle.
When the RBA made a cut, so did the banks and by the same amount. When the RBA raised rates, the banks followed suit.
Rate City explain that as a result, the margin between the RBA cash rate and the major banks’ standard variable rates was consistently 1.8 percentage points, while the margin between their discounted variable rates was by and large 1.2 percentage points.
But as the global financial crisis unfolded, the costs of funding started to climb, and Australian banks began to feel the pinch.
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.
It is no longer an RBA-led decision.
Over the last decade we have seen banks make their pricing decisions 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.
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