Lenders throughout Australia are raising the cost of purchasing property by up to 60 basis points due to the impact of the “Trump effect” and growing expectations that central banks will soon end the era of record low rates.
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The rising cost of funding debt is also widening the competitive gap between the Big Four (who largely fund their lending from customer deposits) and the smaller lenders (who’re more reliant on capital markets).
These rate increases also signal the beginning of the end for the sub-4 percent fixed rate offers that have contributed to record levels of cost-conscious borrowers switching between lenders.
Melbourne-headquartered ME Bank, which is owned by 29 industry funds, announced yesterday that it was also raising its variable rates by up to 10 basis points, the first variable rate hike in the latest round of increases. Fixed rates are rising by up to 15 basis points.
ME Bank, like many other smaller lenders, has traditionally required complex securitised funding even though it has been moving to a deposit-based model since the global financial crisis. ME Bank has been aggressively growing its lending book and remains reliant on the securitised markets.
“The increases were based on increasing swap rates – up 40 basis points since the end of August – and increasing cost of deposit funding. Despite the increases, ME's variable and fixed rates are some of the lowest in the market across both owner occupier and investor loans,” said Patrick Nolan, ME Bank’s head of home loans.
Many mortgage brokers claim they were surprised by the banks’ overnight decision to raise rates because lenders usually warn about changes a couple of days beforehand to avoid having to revise loan offers to clients.
Bank of Sydney is raising its five-year fixed rates by up to 60 basis points. Other major increases on fixed rates include a 20-basis point increase by Bank of Queensland.
More than a dozen lenders have increased rates since Donald Trump won the 2016 US presidential election on a platform of lower taxes and higher spending, increasing speculation of a swing from a deflationary to inflationary economic phase.
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