As read in Mortgage Business -A leading economist has warned that owner-occupier mortgages could face the same price hikes as investor loans, putting pressure on the central business bank to cut rates.
AMP Capital chief economist Shane Oliver told Mortgage Business that while the effects of rate hikes on investor loans are yet to be seen, the real impact will come if the banks decide to increase owner-occupied rates, which he says is “certainly on the cards.”
“It is something that could happen in the next few months, which in turn begs the question of how the RBA will react to that,” Mr Oliver said.
“One way to offset it would be for the Reserve Bank to cut interest rates, because at the end of the day it’s not the cash rate that matters, it’s the rate that people actually pay. And if their rate has gone up then that will be a dampener on economic activity.”
If the current environment of subpar economic growth continues, then it becomes an argument for another interest rate cut by the Reserve Bank, Mr Oliver said.
“The banks therefore would have effectively increased their mortgage rate relative to their costs.”
“That’s one argument I think is quite a powerful one. The pressure on the RBA to cut interest rates again probably remain,” he said.
Mr Oliver’s comments come after a fresh round of capital raisings from two of the four major banks in recent weeks.
“If you need to hold more capital your cost of funding goes up as a bank and your return on equity goes down.
“This in turn has the effect of putting the bank under some pressure.
“It either tries to offset it with reduced deposit rates or higher mortgage rates or some combination of the two,” Mr Oliver said.
“Given the momentum in the housing market, it is not clear that the lift in lending rates to investors that has occurred so far will have a significant impact on investor interest in the market.”” HSBC chief economist Paul Bloxham said.
John can be contacted on 0749722081 or 0410433919. or email him at jwhitten@ihl.net.au or net www.ihl.net.au. John Whitten is a credit representative (CRN 399796) of BLASSA Pty Ltd (Australian Credit Licence No 391237).
