Why has the CBA share price hit a new high today?

Posted: 5 November 2021 1:01 pm

Shares in the top lender are up 55% in the past 12 months.

Banking stocks have been in focus for the last couple of weeks. On Friday, it’s Commonwealth Bank's (ASX: CBA) turn to be in the spotlight. Shares in the banking major are among the top gainers on the ASX in early trading, climbing 1.1% to $109.62 at the time of writing.

Why is the CBA stock price firming up?

Shares in Australia’s biggest bank hit a record high of $109.72 in early trading on the back of the lender announcing a hike in its fixed home loan rates.

CBA has lifted its 1-year fixed rate by 35 basis points to 2.34%, 2-year fixed rate by 25 basis points to 2.34%, 3-year fixed rate by 40 basis points to 2.69% while the 4-year fixed rate offering was jacked up 50 basis points to 2.89%.

CBA’s decision comes a day after the second biggest lender Westpac (ASX: WBC) also lifted its fixed home loan rates between 10 and 21 basis points. The move by the 2 biggest players in the home loan market is a good indication of where mortgage rates are heading, in general.

It comes after a slight shift in the Reserve Bank of Australia’s monetary policy this week, and means that banks will need to continue to lift fixed rates amid improving economic conditions and market expectations for the central bank to lift the cash rate from its record low of 0.10% earlier than expected, in 2023.

Rising rates

Governor Philip Lowe on Tuesday said the central bank would abandon its target rate on the benchmark bond, which was aimed at pinning down the 3-year rate to lower borrowing rates and provide assurance to the market of steady rates.

It had come about after the RBA, as part of its pandemic relief measures, last year offered Australian lenders access to a $188 billion fund at low-cost fixed rates. This Term Funding Facility, which runs until mid-2024, has largely been used by banks to provide lower fixed rate loan products.

While that may not be great news for home buyers, it is reason to cheer for bank investors because a lower proportion of home loans on ultra-low fixed rates will translate into better margins for banks.

This comes at a time when house prices have surged 20% over the past year, the fastest growth rate since 1989.

Home prices have continued to increase despite the banking regulator last month stepping in to cool the market by asking banks to increase the interest rate buffer when assessing home loans.

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