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Banks under pressure to raise rates

by Emma Ryan9 minute read

The rising cost of funds and ongoing regulatory changes are creating “the perfect storm” for banks to begin raising their home loan rates, according to an industry leader.

FBAA chief executive officer Peter White says there are numerous reasons why banks may soon be compelled to increase home loan interest rates and continue to do so over the next 12 months.

Wholesale funding costs, pressure on profit margins and looming regulatory changes may be pressure points for the banks.

Mr White said the rising Australian dollar and increased compliance costs are other factors which are set to put pressure on banks to increase home loan interest rates.


“This is really the perfect storm for interest rate rises as banks look at softening the jump in the wholesale cost of funds that they lend out, like mortgage-backed securities and bonds,” he said.

“Those with money deposited in banks should be happy their interest rates have risen slightly but the flip side is the borrower will possibly have to carry the cost with an increase in home loan mortgage rates.”

Due to this, the need for brokers to continually educate customers about the likelihood of interest rate movements has become even more important.

“Brokers should be aware of what may happen and assess the most suitable outcome for customers if banks do increase the variable rate,” Mr White said.

Mr White said it is potentially a good time for brokers to start discussing the possibility of refinancing under a fixed interest rate with customers.

“There also is an argument for splitting the loan and we know some lenders offer discounts with this type of package,” he added.

[Related: Lawyer warns against FOFA-style reforms in broking]

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