As more non-major lenders announce increases to their variable rate home loan product, one economist is expecting the big banks to respond in kind.
Several lenders have lifted their rates in the past few weeks — including Macquarie Bank, AMP, ING, Bank of Queensland, Heritage Bank and Auswide Bank — announcing increases to their variable rate home loan offerings, with most attributing their decision to a rise wholesale funding costs.
Homeloans became the latest to raise rates, announcing an increase of 0.12 of a percentage point to its niche MoniPower product, effective from next Thursday (26 July).
In a statement to The Adviser, Homeloans added that this product was “typically used for borrowers seeking fixed rate construction loans, offset on fixed rates, bridging, or other out-of-the-box requirements”.
The statement added that the change in rates was “directly due to an increase in wholesale funding costs”.
Speaking to The Adviser, AMP chief economist Capital Shane Oliver noted that he expects the big four banks to announce similar changes to rates in due course.
“I suspect that it’s highly likely the major banks will follow suit as well,” Mr Oliver said.
“The major banks have a bit of flexibility because they get more of their funding from depositors than the smaller banks would, and certainly a lot more than the non-bank lenders do.”
Mr Oliver also observed that recent rises from non-majors are slight in comparison to an official cash rate hike from the Reserve Bank, and he said that he expects such rate changes to influence the central bank’s decision to keep the cash rate on hold.
“What we’re seeing at the moment is modest in the grand scheme of things compared to what the Reserve Bank might do,” the chief economist added.
“I think it’s also likely that the Reserve Bank will keep interest rates on hold because the banks are increasing their rates for them.”
Meanwhile, most of the aforementioned lenders — including Homeloans and, most recently, Adelaide Bank — have reduced rates on their fixed rate mortgage offerings.
Adelaide Bank yesterday announced fixed rate reductions of up to 56 basis points to its owner-occupied, investment and interest-only SmartFix and SmartSaver loan products, effective immediately.
[Related: Lenders hike rates as funding costs spike]