Mortgages will go through a rise in interest rates which follow the latest hikes in the business lending rates. Stephen Koukoulas, the Market Economics economist, says that these interest rates will settle in as soon as next month hits. A clear sign that the net interest margins of banks are quickly narrowing is the raise between 0.08 and 0.20 in the percentage regarding business lending and overdrafts by the top 4 Banks of Australia. Thus, the odds for banks lifting the mortgage rates increase outside any moves from the Reserve Bank.
Raising Mortgage Rates is a Continuation of Business Lending
Mr. Koukoulas has admitted that banks are in some sort of competitive state. He says that even though they prefer not to do it, they will have to if it changes the way it brings them money. He has also admitted that the growth in mortgage rate is just placed as continuity for business lending; this being something banks aren’t exactly strangers to.
In addition to that, Koukoulas has also explained that banks have always gone through raises of the mortgage rates out of cycle to the Reserve Bank of Australia. Seeing that the costs continue to increase every day, it also wouldn’t be the last time the mortgage rate will be raised.
Nowadays, the primary interest is not the demand for credit, but it is actually more concentrated on cost funding. Banks are paying an extra of 40 to 50 basis points, and also various other costs which go to BASEL III and the Australian Prudential Regulation Authority to hold onto their assets. Koukoulas says that the issue at hand is now global, and he explained that this is the exact reason why the rate rose last year as well.
Raises in Mortgages and Business Lending Interest Rates Won’t Cause Recessions
Stephen Koukoulas expects a rise in percentage from 0.10 to 0.15, and although it might put a damper on borrowing, he says that it will not cause a recession. On the other hand, the research managing director from SQM, Mr. Louis Christopher, says that if the rates keep going up like this, it could create a decline in their business. His reasoning behind this is that the value of the market is real high right now, and rates rising might put a dent in everything.
However, he adds that as long as the rates will not move, the housing market will be steady. With house credit loans going around, there will be minimal impact on the bank rates rises on the property market. Christopher adds that the real trouble will only come once the pace falls off. So the changes in mortgage rates and business lending raises are the banks’ ways of maintaining a balance with the market.
