Higher interest rates in store for borrowers for the rest of 2016

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Borrowers might have to pay higher interest rates in the second half of the year as banks eye repricing opportunities following the conclusion of the federal election and the easing threat of a royal commission into the industry.

Sources say that some big banks have been assessing options to reprice assets if the Coalition won the election and political scrutiny was reduced, with loans more likely to be hit than deposits. Analysts also note that a bigger headache would ensue if Standard & Poor’s cuts the big banks’ credit ratings.

“I expect the banks will try to recoup any increase in costs via out-of-cycle rate repricing. I, however, also do not think that much of the increases will stick over the long term given competition is likely to price is away,” said Brad Potter, head of equities at Nikko Asset Management. “We assume net interest margins are flat to slightly down over the long term from here.”

Early this week, the National Australia Bank has cut some of its fixed mortgage rates to as low as 3.75 per cent due to heavy competition.

Fund manager Andrew Martin from Alphinity Investment Management predicted that the easiest way for banks to reprice is to hold back any cuts by the Reserve Bank. “They’ll still all want to (reprice)… But I don’t think it’s as simple as saying, ‘Okay, now the election is over, let’s do it,’” Martin said. “They’ll all still have one eye on the Government, the Senate, the independents, and I don’t think the risk (of a royal commission) has completely gone away, so they’ll still be a bit concerned about that.”

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