Two of the major banks have already said their rates are going up for home loans. Commonwealth Bank of Australia has now done the same, with ANZ following close behind.
The bank has hiked investment loans by 26 basis points to 5.94 per cent for interest-only investment loans; and standard variable rates for interest-only owner-occupier home loans by 25 basis points to 5.47 per cent.
This is despite the Reserve Bank of Australia keeping the official cash rate at a historic low of 1.5 percent. The major banks, however, have been slowly creeping up their interest rates this year.
Interest Rate Hikes Target Investors
The banks have pointed to the increasing cost of funding for the interest rate hikes. There is also a consensus that putting the pressure on property investors will help to slow growth and control the market. The Australian Prudential Regulation Authority has set new criteria for investor loans to keep growth below 10 percent. This means that investors will see steeper increases as banks move to meet regulatory criteria, while if you are an owner-occupier, your mortgage repayments won’t likely go up as much.
The increases are also designed to protect the banks’ profits, as rate hikes help to improve their margins on all variable loans. Another way to meet the APRA regulations would have been to implement stricter regulations for property investors, thus leading to capped growth. The banks so far have chosen increasing home loan rates over stricter investor borrowing requirements.
Should You Refinance Now?
This means that if you are currently a homeowner, you may want to consider refinancing now. If you are currently paying down a variable rate loan, your monthly mortgage repayments will go up if your loan is with one of these banks. Also, while other lenders aren’t likely to increase rates as quickly, even non-bank lenders may enact a hike as a response to the major banks.
Many borrowers are browsing for options as the major banks push their rates up to either secure a fixed rate home loan or to find a better deal with other lenders.
Finance experts Steve Mickenbecker notes that the big banks tend to follow each other. When one announces a change in mortgage interest rates, the other three are almost certain to make similar changes. ”The trend is the banks cover for each other, with maybe a bit more pain being taken by the first-mover.” According to Mickenbecker, Commonwealth, as well as ANZ, will likely make announcements any day now.
Written by eChoice.