“Trump effect” pushing up fixed rates for home loans in Australia

Adam Smith 18 November 2016

Trump effect pushing up fixed rates

A flurry of rate hikes arrives as mortgage lenders respond to the “Trump effect”.

Ten lenders in finder.com.au’s home loan database have hiked their fixed rates by as much as 45 basis points in recent days, bucking the general trend of rate reductions on home loans in 2016.

The flood of rate rises comes on the heels of the US presidential election. Digital Finance Analytics principal Martin North told the Australian Financial Review that Donald Trump’s shock win could be behind the change.

“International funding costs are rising, which is the fallout from the ‘Trump effect’. Other lenders are likely to follow,” North said.

Most of the rises are between 0.10% and 0.30%, though Catalyst Money and Illawara CU have both put up some loan rates by 0.45%. Existing fixed rate customers won't be impacted; the change is for new customers signing up for a loan.

How did rates move?

LenderChangeLoans affected
Loans.com.auUp 0.13%Fixed Home Loan (owner occupier + investor)
P&N BankUp 0.10%Fixed Rate Home Loan
Illawarra CUUp 0.10 - 0.45%Fixed Home Loan, Fixed Lite Home Loan (owner occupier + investor)
Catalyst MoneyUp 0.10 - 0.45%Fixed Home Loan, Fixed Lite Home Loan (owner occupier + investor)
Beyond BankUp 0.10%Fixed Rate Loan Standard and Total Home Loan Package  (owner occupier + investor)
Bank of QueenslandUp 0.20%Standard and Home Loan Privileges Package (owner occupier + investor)
WestpacUp 0.10%Flexi First Option 3 Years Introductory Special Offer (owner occupier + investor)
Greater BankUp 0.11% - 0.35%Great Rate and Ultimate loans (owner occupier + investor)
Bank of SydneyUp 0.10% - 0.30%Expect More Fixed Rate PAYG and Expect More Fixed Rate
FirstmacUp 0.13%

Rate volatility is likely to continue. North told the AFR that Trump’s proposed tax cuts and increased infrastructure spending could see funding costs continue to rise for lenders.

“If the US do turn on the debt tap to fund infrastructure builds, this is likely to drive rates up. I know the banks have more deposit funding now, but they are still caught in the draft of international rate movements,” North said.

Variable rates have also shifted several times in 2016, with banks making reductions following cuts in the official RBA cash rate in May and August this year. Banks have generally not passed on the full cut, leading to calls for the introduction of tracker mortgages, which always reflect official rate movements.

As fixed rates head up, Mortgage Choice spokesperson Jessica Darnbrough has told the AFR variable rates are likely to follow.

“When lenders start to lift the pricing on their fixed rates, the variable rates don’t tend to fall any lower,” she said.

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