Banks could hike rates following election

Adam Smith 20 May 2016

house graph upMortgage holders could face out-of-cycle rate rises following the federal election.

1300HomeLoan managing director John Kolenda has predicted that despite the widespread expectation that the Reserve Bank will lower the cash rate once again before the end of the year, banks are likely to lift home loan rates. Kolenda said the 2 July election has delayed moves to raise rates out-of-cycle with the RBA, but that funding pressures will see banks move following the election.

“The banks want to lift rates in response to rising funding costs and the additional costs they face for the extra compliance and regulatory increase on reserves they will have to have in place by the end of June this year,” Kolenda said.

Kolenda speculated that the Labor Party’s election promise to hold a royal commission into the banking system could be keeping banks on the sidelines for the moment. Once the election has been decided, Kolenda said future downward moves by the RBA are likely to be offset by upward moves from lenders.

“While the RBA has room to cut its cash rate further due to the sluggish economy and subdued consumer confidence, any future reduction is likely to be negated,” he said.

“Banks will look to increase their rates at the next opportunity, most likely in the second half of the year once the election is out of the way.”

Sellers could also be kept on the sidelines by the election

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