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25 bps rate hikes ‘could become a way of life’

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Reporter 2 minute read

Large mortgage rate increases, such as CUA’s recent 25 basis point hike, could become a “way of life” when the RBA starts raising the cash rate, financial comparison site Canstar has warned.

Steve Mickenbecker, Canstar’s group executive of financial services, made the comments after noting that Credit Union Australia had followed the recent spate of interest rate increases with a relatively large rate hike.

As of Tuesday (21 August), the credit union has increased interest rates by 0.25 of a percentage point p.a. across a number of CUA’s variable rate home loans for borrowers paying principal and interest as well as those making interest-only payments.

Speaking of the decision earlier this month, CUA’s chief sales officer, Paul Lewis, said that the decision was not made “lightly”, but that like other lenders in Australia, it had been “impacted by rising funding costs in recent months”.

Mr Lewis said: “CUA has absorbed these costs to date and we’ve delayed passing these costs on to borrowers. But over recent months, we’ve seen many other lenders have already reviewed interest rates in light of these higher funding costs.

“Unfortunately, we expect funding costs to remain elevated in the coming year. This has meant we’ve needed to review interest rates to offset these higher funding costs.”

Speaking of the move, Canstar’s Mr Mickenbecker noted that most rate increases in recent months had been between 8 and 10 basis points, and that CUA’s rate move “goes beyond what we have been seeing”.

He said: “At 0.25 [of a percentage point], [this] is the sort of increase that could become a way of life when the Reserve Bank eventually starts the upward move in the cash rate.”

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While the minutes of the RBA’s latest board meeting suggest that there is no “strong case” for a near-term adjustment in monetary policy (which has kept the cash rate at its record low level of 1.5 per cent for two years), members did agree that the next move in the cash rate would “more likely be an increase than a decrease”.

“The wholesale funding cost is largely driven by international conditions, and all lenders will be feeling some pressure, but the degree will vary depending on when existing wholesale funding is re-pricing and by the funding mix of the lender.”

The group executive of financial services added that lenders with a high proportion of retail deposits, such as the big four banks, were not as pressured to lift rates as those that rely more on wholesale funding.

Indeed, Commonwealth Bank, ANZ and NAB’s UBANK all reduced rates over the past month.

[Related: Credit union sees increase in broker flows]

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