- Australians could face rising interest rates in the coming months as banks feel the heat.
- A majority of the economists surveyed by Finder expected variable rates to rise before 2021 without any move by the Reserve Bank of Australia.
- It would place homeowners and investors under more pressure, with one in nine already unable to make their repayments.
It’s likely the last thing homeowners and investors want to hear right now, but Australian interest rates could be about to jump unexpectedly.
With the Reserve Bank of Australia (RBA) having slashed the official cash rate to a historic low of 0.25%, Australian lenders have been compelled to move lower in a race to the bottom.
In doing so, banks have given the property market a shot in the arm at the expense of their own healthy margins.
Now some might be prepared to push their lending rates back up, leaving borrowers to foot the bill.
According to a Finder survey of Australian economists, 57% said variable interest rates would rise despite no movement from the RBA. Half of those said banks would raise rates on Australians before the end of the year.
“Banking profits have nosedived off the back of billions of dollars worth of loan deferrals, a shrinking pool of first-time buyers, low-interest rates and minimal credit growth,” Finder insights manager Graham Cooke said.
“This may send banks scrambling to recoup lost funds by pushing up home loan rates to absorb some of these costs, which will come at a detriment to mortgage customers.”
Since the onset of the pandemic, regulator APRA has instructed Australia’s banks to limit their dividends so as to keep some powder dry for Australia’s first recession in three decades.
Meanwhile, amidst rising unemployment one in nine Australian borrowers aren’t making their repayments right now, with question marks remaining over what happens when those deferments come due in January.
In tandem with record low-interest rates, Australian bank profits are under enormous pressure.
While no bank has yet indicated a hike is imminent, the premise is an interesting one.
Any move upwards would be made independently and in spite of the RBA’s indications that the official cash rate would likely not budge for three years. Its last hike meanwhile was in November 2010.
It would also place an increasing burden on owners and investors, some of whom are already leveraged to the hilt.
All of this at the time the rental market in some capital cities is already soft, and with migration and tourism on pause, government support due to be cut back, and unemployment set to hit 10% by the year’s end.
Rising repayments would only crank the pressure gauge higher.