Mortgage holders have been urged to prepare for out-of-cycle interest rate hikes from lenders spurred by an increase in funding costs, according to a comparison site.
After online lender ME claimed that it was “forced” to hike interest rates on its owner-occupier and investor loans as a result of increased funding costs, comparison site finder.com.au asked a panel of economists whether they believed other banks would follow.
According to the finder.com.au survey of 17 economists, 78 per cent said that they expected more lenders would raise their rates out of cycle as a result of rising US interest rates.
Finder’s insights manager, Graham Cooke, said that rates could increase irrespective of the Reserve Bank of Australia’s (RBA) cash rate decisions.
“Increased international lending costs may force banks to increase rates for home loan customers out of cycle, even if the cash rate doesn’t budge,” Mr Cooke said.
“The days of super low interest may be over for borrowers sooner than expected.
“Brace yourself for out-of-cycle rate hikes, especially if the US Federal Reserve lifts rates again.”
RBA cash rate predictions
The RBA will announce its cash rate decision for May on Tuesday, 1 May.
When asked to predict the central bank’s decision, 97 per cent (29/30) of respondents from Finder’s RBA survey predicted a hold verdict.
Respondents claimed that mixed economic conditions and low inflation would deter the RBA from altering the record low cash rate of 1.5 per cent.
Head of investments strategy and chief economist at AMP Capital Shane Oliver noted: “Strong business conditions and employment, rising non-mining investment, strong global growth and the RBA’s own forecasts argue against a cut, but low inflation and wages growth, risks around the outlook for consumer spending, the slowing Sydney and Melbourne property markets and tightening bank lending standards argue against a hike. So, the RBA [cash rate] is likely to remain on hold.”
However, economist at My Housing Market Andrew Wilson claimed that underwhelming consumer price index (CPI) data and slowed housing market activity could prompt the RBA to lift rates.
“Latest data remains neutral for the current setting environment, with ABS March quarter CPI still clearly underwhelming. Predictable end to APRA market manipulation reflects generally moderated housing market activity so RBA can concentrate on main macro game,” Mr Wilson said.
Further, 87 per cent of respondents said that they expect the next cash rate move to be up, with 82 per cent of the 17 economists surveyed claiming that the RBA would refrain from lifting the cash rate until 2019.
“Inflation is low, the downtrend in unemployment appears to have stalled and the RBA is emphasising ‘patience’,” Commonwealth Bank chief economist Michael Blythe said.
Mortgage Choice spokesperson Jacqueline Dearle added: “When the economy can better absorb the impact of an increase and inflation is at 2 per cent or near that target level, [governor] Lowe will lift the rate.”
Moreover, according to Finder’s Economic Sentiment Tracker, household debt was the greatest source of concern, with 53 per cent of surveyed economists reporting a negative outlook on household debt.
“With household debt at an all-time high, this does not bode well for stressed borrowers,” Mr Cooke added.
Conversely, employment sentiment was strongest (60 per cent), followed by wage growth (35 per cent) and housing affordability (21 per cent).
According to Mr Cooke, strong employment sentiment was driven by government policy initiatives.
Mr Cooke said: “Employment was a key part of the 2017–18 budget with a focus on helping disadvantaged members of society, such as parents, Indigenous Australians and older people, find employment opportunities.
“Initiatives such as ParentsNext and Closing the Gap are two examples of this, and it’s likely employment and job creation will remain a central theme in the 2018–19 budget, due to be released next Tuesday (8 May).”
[Related: Bank ‘forced’ to hike interest rates]
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