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Jury out on 10pc rates

Staff Reporter 4 minute read

The industry is split over the possibility that home loan interest rates will hit the 10 per cent mark.

According to the latest Mortgage Business straw poll 49 per cent of respondents are confident that standard variable mortgage rates will remain below 10 per cent.

However 27 per cent said rates will hit 10 per cent within 12 months; 20 per cent of respondents expected the barrier to be breached within six months.

Richard Robinson, senior economist at BIS Shrapnel, said that while rates may not reach 10 per cent it will be a close call.

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“Given the current margin between the RBA’s cash rate and that of lenders, rates are likely to peak around 9.8 per cent,” he said.

Increased funding costs have forced many lenders to raise their rates above recent RBA hikes. With no sign of recovery yet in sight for capital markets, pressure will continue to mount on mortgage lenders’ margins and further increases look certain.

Higher interest rates will be the norm for the foreseeable future, said Mr Robinson.

“Borrowers are essentially going to have to adjust to a new era where rates will remain around the nine per cent mark,” Mr Robinson said.

John Pehlivanidis, group general manager of operations at Capital Securities, agreed that rates will near but won’t break the 10 per cent mark.

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“Bank standard variable rates are highly likely to cap out at around 9.8 per cent, so I don’t think they’ll break the 10 per cent mark,” he said.

Mr Pehlivanidis added that while the RBA rate may well increase the cash rate to 7.5% in May “any further movement is more likely to be downward as we approach 2009”.

Published: 02-04-08

Jury out on 10pc rates
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