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Homebuyers warned of looming mortgage rate rise risk


Homebuyers have been warned to prepare for an out-of-cycle increase in mortgage interest rates as signs grow that a crackdown on lending standards is hitting the profit margins of the big banks.

Despite the Reserve Bank holding the official cash rate steady at its monthly meeting yesterday, industry insiders believe homebuyers could soon be slugged with a rate rise of up to 0.2 percentage points.

Such an increase would add $35 a month to repayments on a $300,000 mortgage. Reserve governor Philip Lowe, while confirming the cash rate would remain at 1.5 per cent, signalled there may be pressures on interest rates outside the control of the RBA.

“While there may be some further tightening of lending standards, the average mortgage interest rate on outstanding loans is continuing to decline,” he said.

Treasury and the Reserve have been increasingly concerned that the royal commission into the banking sector may lead to tighter lending standards.

“Already banks have widened the difference between mortgage rates offered to homeowners and investors on the back of pressure from regulators. But there are also signs global financing costs are rising.”

Managing director of mortgage broker 1300HomeLoan, John Kolenda, said those financial pressures on top of regulatory changes could soon end up costing homebuyers.

“These increases are already starting to flow through and we could see upward rate movements of more than 20 basis points,” Mr Kolenda said.

AMP Capital chief economist Shane Oliver said the fall in mortgage costs cited by Dr Lowe was due to new borrowers enjoying lower interest rates than those who entered the market several years ago.

He said tighter lending standards, particularly around income and expenses from potential borrowers, would slow the number of people entering the market and put downward pressure on property prices.

“We remain of the view that the RBA is likely to remain on hold for a long time yet and we don’t see a rate hike until 2020 at the earliest,” he said.

“And given the weakness in home prices and the negative wealth effect that will flow from that it’s premature to rule out the next move in official rates being a cut.”

Source: The West Australian, 6 June 2018

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