There's plenty of "will they, won't they" debate among economists regarding the Reserve Bank's impending rate announcements, but some industry experts are warning borrowers to brace for higher rates in the next six months, regardless of the RBA's decisions.
There’s plenty of “will they, won’t they” debate among economists regarding the Reserve Bank’s impending rate announcements, but some industry experts are warning borrowers to brace for higher rates in the next six months, regardless of the RBA’s decisions.
David Airey, president of the Real Estate Institute of Australia (REIA), said the real estate industry is already struggling with a slow buying market and lower-than-usual spring forecasts, as the six recent interest rates continue to bite.
However, he said that it’s the banks that have the industry really worried, as there are fears that lenders will soon increase mortgage interest rates outside of an RBA rate rise in an attempt to claw back their profit margins.
Making matters worse is the still-undecided outcome of the federal election, as the federal government remains in “caretaker mode”, and is therefore less likely to hold banks accountable.
“Without a clear outlook on who will govern Australia, the major lenders need to be responsible and make sure they don’t take advantage of the political vacuum and raise margins simply because they can get away with it,” Airey said.
“Knowing that they won’t be reprimanded while the Government is in caretaker mode provides an opportunity for lenders to take advantage of this situation.
“Unfortunately, those that will be the most affected are average Australians trying to make ends meet and those trying to make a move into the property market.”
Commonwealth Bank CEO Ralph Norris did nothing to calms fears, when he revealed that the bank's cost of funding on an average mortgage would rise by 40 basis points (0.40%) in the next 12 months.
Norris said that this would place further pressure on the bank’s profit margin, and confirmed that the cost would eventually be passed on to mortgage holders.
"At some point, we may well have to pass on something [of this cost] to our customers," Norris told reporters at a press conference to announce CBA’s record $6bn profit earlier this month.
NAB chief executive Cameron Clyne also confirmed that funding costs for banks are rising, but he has pledged that increased costs won’t be passed on to their home loan customers – for the time being, at least.
“We don't have any immediate plans to change our current settings. We are pleased with the momentum our business is achieving, and by maintaining a competitive proposition, we think it’s the right thing to do for the business as well as our customers," he told an investor briefing.
However, he didn’t rule out making a move if one of the other Big 4 banks increase rates first.
"If our peers make moves we'll make assessments at that time, but we don't sort of give forward looking statements on what we're going to do on interest rates,” he said.