Home News Mortgage holders are the real losers in Australia's credit downgrade

Mortgage holders are the real losers in Australia's credit downgrade

Font size :
With S&P Global ratings cutting its outlook on Australia's AAA grade to negative, home buyers could face much higher costs on their mortgages as banks will surely pass funding costs to their consumers.

S&P explained that Malcolm Turnbull's election win was not strong enough to allow for forceful fiscal policy measures to curb budget deficits. The outlooks for the four largest banks—Australia and New Zealand Banking Group Ltd., Commonwealth Bank of Australia, National Australia Bank Ltd., and Westpac Banking Corp.—were also immediately reduced because their credit scores benefit from government support.

"An increase in funding costs relating to a ratings downgrade will impact bank margins, but banks may choose to offset this via loan pricing," said Anthony Ip, a credit sector specialist at Citigroup Inc. However, he also pointed out that the extra funding costs would be manageable. "At the end of the day, it's still a competitive lending market," he said.

According to Citigroup, if rankings are lowered for Australia's big four banks after a sovereign downgrade, borrowing costs could increase by as much as 20 basis points and mortgagees may have to deal with higher interest rates. A 25 basis points increase on a A$300,000 30-year home loan could add $A62 to the monthly interest payment.

Historically speaking, banks make homeowners shoulder some of the burdens once they are confronted with increased funding costs. Last October, all the big four banks raised their mortgage rates for owner-occupiers for the first time in five years due to the higher cost of holding more capital.

"While the banks have pricing power, they have passé don funding costs before to customers and it could happen here, too," said David Walker from equities management firm Clime Investment Management.

It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan

Mortgage News and Articles

House prices return to more affordable levels in mining towns House prices return to more affordable levels in mining towns

While the end of the mining boom has had a negative impact on property prices, homes in the region have become more affordable Read more

Borrowers should anticipate a possible rate hike Borrowers should anticipate a possible rate hike Some experts advise borrowers to look for a fixed loan that allows extra repayments so that they can whittle down the balance sooner ... Read more

Why choosing the right mortgage is hard for first-home buyers Why choosing the right mortgage is hard for first-home buyers Many feel overwhelmed by the sheer range of products and interest rates on offer, a new survey reveals ... Read more

Mortgage applications drop in second quarter Mortgage applications drop in second quarter This marks the “beginning” of a downward trend, says Equifax executive ... Read more

More mortgage news and articles

Sponsored Links

Thursday, Jul 27, 2017
Top Featured Rates
Top Bank Rates

Get help choosing the right home loan

Whether you're a first homebuyer, looking to refinance, or investing, it's important to have the right loan for your needs. Just fill in a few details below and one of our trusted mortgage advisers will contact you.

A quick & easy way to find the right home loan
  • Purpose of mortgage
  • Household Income
    $
  • How much do you want to borrow?
    $
  • How much deposit do you have?
    $
  • How much is your house worth?
    $
  • How much do you still owe on your mortgage?
    $
  • What type of mortgage do you have?


  • How much is your new home?
    $
  • How much do you want to borrow?
    $
  • How soon do you want a mortgage?
Next
  • First name
  • Last name
  • Where do you live?
  • Phone number

Special Offers

Related Keywords