Turbulence in the home loan market: Out-of-cycle rate hikes to continue – August, 2018
- 58% of experts and economists think the big four banks will adjust mortgage rates out-of-cycle
- However, just 35% of panellists believe homeowners should fix their rate
- The cash rate holds at 1.5% for August 2018
7 August, 2018, Sydney, Australia – The Australian home loan market is about to get a shake up with experts and economists predicting further out-of-cycle rate hikes, according to finder.com.au, the site that compares virtually everything.
Despite the Reserve Bank (RBA) holding the cash rate this afternoon (07/08/2018), many smaller lenders have been lifting interest rates independently of the RBA.
Last month we saw several out-of-cycle interest rate changes for both variable and fixed products from smaller providers. For instance, AMP lifted its rate by 8 basis points for owner-occupiers while Heritage Bank increased its variable rate by 5 basis points for investors and owner-occupiers.
With this in mind, panellists from the finder.com.au RBA survey were asked if the big four banks will likely follow suit, and the majority (58%) said ‘yes.’
Graham Cooker, Insights Manager at finder.com.au, says mortgage holders should take action and evaluate their interest rate options.
“As the market heats up and becomes more turbulent, chances are your bank is going to lift your rate, so why wait around?
“Stop what you’re doing, jump online and get your hands on a lower rate.
“Switch to a lender with a more attractive rate or consider restructuring your loan to fix part of your rate - whatever you decide, take action sooner rather than later,” he says.
Mr Cooke explains that funding costs are behind the out-of-cycle rate movements.
“With no cash rate movements for two years now, and funding requirements for the larger banks becoming more stringent, the pressure on lenders to increase home loan interest rates is real,” he says.
However, despite the prediction of further out-of-cycle rate hikes, just 35% of experts believe homeowners should fix their mortgage rate.
According to the survey, predictions of a cash rate rise are being pushed further into the future, with only 30% of experts and economists (7 of 23) believing there’ll be an increase before July 2019.
For the first time in over 12 months, panellists have shown the most bearish sentiment for a cash rate fall with more experts (28%) predicting the next move to be a decrease, which is up from 16% just last month.
“The sentiment shift may be due to dipping property prices and concerns about household debt,” Mr Cooke says.
In a separate finder.com.au survey of 2,011 consumers, just 38% of mortgage holders said they’re thinking of fixing their rate in the next 12 months.
The majority (17%) of respondents are fixing to protect themselves from interest rate rises while many (12%) simply enjoy the certainty that comes with a fixed rate.
Here’s what our experts had to say:
Jordan Eliseo, ABC Bullion (Hold): "The RBA will remain on hold for some time. Whilst they are no doubt concerned regarding continued low levels of inflation and wage growth, overall performance in the Australian economy suggests the most prudent course of action is to stay the course as regards interest rate settings. Lower house prices, and the potential for a negative "wealth effect" will be on their radar, but it will be some time before they next move."
Tim Nelson, AGL Energy (Hold): "Private non-mining business investment is strong, inflation has remained low and household debt and housing conditions indicate that a steady approach is likely. "
Shane Oliver, AMP Capital (Hold): "Growth has picked up a bit and the RBA is optimistic, but inflation and wages remain too low, property prices are falling in Sydney and Melbourne, the housing construction cycle has peaked and uncertainty remains around the outlook for consumer spending. So it's way too early to hike, but hard to mount a case for a cut either right now. So best to remain on hold."
Alison Booth, ANU (Hold): "Fundamentals don't yet suggest the interest rate needs to change."
John Hewson, ANU (Hold): "Household debt/global uncertainty."
Malcolm Wood, Baillieu Holst (Hold): "Need for ongoing policy support given households under pressure, easing stages of a housing downturn, China slowdown and underlying inflation around low-end of target"
Paul Dales, Capital Economics (Hold): "The RBA is increasingly worried that financial conditions will be tightened by banks raising their mortgage rates and using stricter credit criteria, so it will keep interest rates at 1.5% so as not to make things worse. "
Michael Blythe, CBA (Hold): "Low inflation and lack of wages growth indicates no hurry to act on rates."
Saul Eslake, Corinna Economic Advisory (Hold): "Although overall economic growth is now close to trend, unemployment (and especially underemployment) remain higher than the RBA wants, while the June quarter CPI data showed underlying inflation still running below the lower bound of the RBA’s target range. And most measures of wage inflation remain at or close to historic lows. It’s difficult to envisage the RBA Board altering its conclusion that the next movement in rates is some way off. "
Peter Gilmore, Gateway Bank (Hold): "Glacial change in local fundamentals and global volatility will see the RBA sit tight."
Mark Brimble, Griffith Uni (Hold): "Material uncertainty in the economy."
Peter Haller, Heritage Bank (Hold): "There is no rationale for the RBA to change rates at this point in time."
Shane Garrett, Housing Industry Association (Hold): "Australia's economy is creating healthy volumes of new jobs, although the majority of these are part time. Inflation and wage pressures are under control, while dwelling prices have softened in both Sydney and Melbourne. This is not the time for interest rates to rise. The likelihood that the next move will be downward is growing."
Alex Joiner, IFM Investors (Hold): "The data flow hasn't improved materially enough over recent months to warrant the RBA shifting its current cautiously optimistic bias."
Andrew Armstrong, ING Bank (Australia) Limited (Hold): "No material change in economic conditions from prior period."
Leanne Pilkington, Laing+Simmons (Hold): "Weak underlying inflation strengthens the case for the RBA to leave rates on hold. The housing market requires this stability at the moment."
Mathew Tiller, LJ Hooker (Hold): "Economic conditions don't support any movement in the cash rate at present."
Stephen Koukoulas, Market Economics (Hold): "The RBA will hold rates because it continues to place a higher priority on reducing house prices than meeting its inflation target and tackling the slack in the labour market. It should be cutting interest rates."
John Caelli, ME (Hold): "Despite strong employment data, the weaker than expected CPI figures together with subdued wage growth and concerns around inflation and household debt levels, will likely keep rates on hold."
Michael Yardney, Metropole Property Strategists (Hold): "There is no reason to alter interest rates. Our weakening housing markets, low inflation rate and soft wages growth suggest no rise in rates is imminent. If anything this would dampen already sluggish consumer confidence."
Mark Crosby, Monash University (Hold): "RBA has strongly signalled that rates will remain on hold for at least a few months, and most likely into 2019."
Jacqueline Dearle, Mortgage Choice (Hold): "I expect the RBA to hold the official cash rate at 1.5% in August 2018 because despite good global economic growth, the domestic economy is below expectations with wages and inflation likely to remain low. New tightened lending standards and increased scrutiny around borrower living expenses coupled with cooling property prices will also play a factor in the RBA’s decisions to hold."
Dr Andrew Wilson, My Housing Market (Hold): "Latest data strengthens case for continuing steady outlook for official interest rates with underlying June quarter inflation low and stagnant. Wages Index data to be released soon may fuel growing concerns that the economy may require more stimulus to offset chronically low consumption, rising fuel and energy costs and the emerging prospect of a trade barriers."
Alan Oster, Nab (Hold): "Still too early to move. Wages need more momentum House prices also flat to falling."
Jonathan Chancellor, Property Observer (Hold): "There's nothing but watching and waiting on the RBA agenda for the time being."
Matthew Peter, QIC (Hold): "The June quarter CPI report has buried recent commentary that the RBA should be considering a rate increase."
Noel Whittaker, QUT (Hold): "No reason to move."
Jo Horton, St.George Bank (Hold): "Economic growth is solid, business conditions are elevated and jobs growth is strong. There are risks to the global economy, including trade concerns and the domestic economy, including housing. There are downside risks emanating from a tightening in lending standards and recent upward pressure on wholesale funding costs, as recently highlighted by the RBA. This suggests the RBA will leave interest rates on hold for an extended period."
Richard Holden, UNSW (Hold): "Low inflation; low wage growth; housing price pressure."
Clement Tisdell, UQ-School of Economics (Hold): "High level of debt and low rate of increase in prices."
Bill Evans, Westpac (Hold): "The June Quarter CPI, and the revisions to our inflation forecasts are consistent with an RBA on hold out to the end of 2019."
For further information
The information in this release is accurate as of the date published, but rates, fees and other product features may have changed. Please see updated product information on finder.com.au's review pages for the current correct values.
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