The cruel twist for home loan customers, rates have climbed despite RBA keeping rates on hold
BANKS have been booking billions of dollars of profits from out-of-cycle rate rises, and not just from under-fire investors and interest only borrowers.
EXCLUSIVE
ALMOST nine out of ten borrowers with variable rate mortgages have been hit with an interest rate rise in the past two years, despite the Reserve Bank of Australia not lifting its official cash rate.
Banks have been booking billions of dollars of profits from out-of-cycle rate rises, and not just from under-fire investors and interest only borrowers, a new analysis by comparison website Mozo.com.au has found.
“Rates have risen on 4.3 million variable rate home loans — 87 per cent of all variable rate home loans,” Mozo director Kirsty Lamont said.
“This helps explain some of the statistics we are seeing of more and more households falling into mortgage stress,” she said.
“Investors have been the hardest hit — 98 per cent of investment loans have had rate rises. At the same time the banks have been increasing profit margins on other loans and owner occupiers have also been hit, to a lesser degree,” she said.
About 85 per cent of mortgages are on variable rates, which are driven mainly by cash rate movements. The RBA kept the cash rate on hold yesterday at a record low 1.5 per cent.
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Interest only borrowers have been hit hardest by rate rises in recent months as regulators push for greater use of lower-risk principal and interest loans.
The gap between interest only investment rates and principal and interest owner occupier rates has ballooned to about 1 per cent — two years ago they were almost the same.
And more financial pain may be heading interest only borrowers’ way if lenders demand they switch to more expensive principal and interest mortgages.
Baillieu Holst chief economist Darryl Gobbett said such a move could have as much impact as a rate rise.
“The RBA and regulator APRA are trying to move people off interest only and onto principal and interest loans ... it could be forced onto some,” he said.
A survey of 35 economists by Finder.com.au found that almost nine out of 10 of them — including Mr Gobbett — expect the next RBA rate move to be up, but probably not until next year. Most economists rejected recent suggestions that eight rate rises might occur over the next two years.
The RBA’s cash rate has been at 1.5 per cent for a year, and Mr Gobbett said 1.5 to 2 per cent might be the “new normal” for official rates rather than its historical 3.5 per cent. He said the “iron rules of the past have become very, very plastic”.
Economists said recent rises in the Australian dollar and low inflation should help keep interest rates down, because the RBA preferred a low dollar to boost our international competitiveness. High interest rates attract more foreign money and can increase the Aussie dollar.