Home loan borrowers should brace for rate rises across the market

Home loan borrowers may need to find extra room in their budgets very soon, with lenders hiking interest rates in response to increased funding pressure.

A number of lenders have increased variable home loan rates this month, with major regional bank, Bank of Queensland, the latest to announce increases of up to 0.15%, effective from July 2. Smaller lenders including Greater Bank, Homestar, Auswide and ME also announced rate rises between 8 and 13 basis points across a number of their home loan products.

“So far we’ve seen home loan rate increases from second tier and smaller lenders, but I wouldn’t be surprised to see the trend spread to the big four banks as well,” said Mozo Data Manager Peter Marshall.

However, one factor holding the big four back from hiking home loan rates any time soon is the heat from the Royal Banking Commission, according to Marshall.

“The big banks might be more reluctant to raise rates just at the moment when their image has already taken such a hit,” he said.

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Increased cost of funding was pegged as the major cause behind recent rate rises. With overseas central banks lifting their cash rates - particularly the US Federal Reserve - Aussie banks compensate for the higher cost of securing funding by raising interest rates on mortgages.

Announcing the Bank of Queensland increases, Anthony Rose, Acting Group Executive Retail Banking said, “Funding costs have significantly risen since February this year and have primarily been driven by an increase in 30 and 90 day BBSW rates, along with elevated competition for term deposits.”

“While the bank has absorbed these costs for some time, the changes announced today will help to offset the ongoing impact of the increased funding costs.”

This funding pressure isn’t unique to a few lenders, and Marshall said that borrowers should brace for more rate rises in the near future, regardless of whether the RBA chooses to change the cash rate or not.

“The cost of overseas funding has been on the rise for quite a while now, and banks have absorbed quite a bit of that extra cost. It seems like we’re now reaching a point where they feel they can no longer do that,” he explained.

“Given that, I think it’s only a matter of time before we see home loan rate increases across the market.”

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