Home loan rates are climbing, but the RBA won’t join in at July meeting

It’s hard to believe that the sixth RBA board meeting of the year is almost here, but while all eyes will be on Governor Philip Lowe’s statement at 2:30pm on Tuesday, another likely rate hold will mean that attention soon shifts back to where the real rate movement lies - in the home loan market.

The expert consensus yet again firmly favours a record 21st consecutive interest rate hold from the Reserve Bank, with a combination of steady economic indicators on the one hand and unwelcomely high levels of household debt on the other keeping any move off the table - at least in the short term.   

According to Mozo Product Data Manager, Peter Marshall, the RBA is all but certain to sit on its hands again and keep the official cash rate at a record low level of 1.50%.

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“The CPI and trade figures are reasonably good and unemployment isn’t alarming anyone, so those indicators mean that the RBA will be looking to either sit or increase. Given the out-of-cycle increases going on at the moment, the RBA will be quite content to just wait and see what happens,” he said.

“Potentially if we do get more rate increases and the economy’s strength continues to be below expectations, the RBA could cut rates to counterbalance some of the out-of-cycle increases we’re seeing at the moment, but I doubt that’s going to happen.” 

Big four set to join smaller lenders in rate rise party

Australian banks have been feeling the pressure when it comes to the cost of overseas funding for a while now, but a continued rise in European interest rates and a rate rise from the U.S Federal Reserve earlier this month has contributed even more.

Combined with an unusually high Bank Bill Swap Rate (BBSR) at home, it’s hardly a surprise that funding pressures have resulted in some of the smaller and challenger home loan lenders upping rates out of cycle.

Auswide, Greater Bank, Homestar and ME have all announced rate rises of between 8 and 13 basis points across a variety of their respective home loans, while the Bank of Queensland also signaled increases up to 0.15% from July 2.

And it’s likely just a matter of time before Australia’s big banks jump in on the rate rise action, with Marshall suggesting that some big four home loan customers could very well see an increase to their rates within the next month.

“The big guys have been absorbing these increased funding costs for a long time already and I think we’re at a point where, given that a number of lenders have already started to move, I expect nearly every other lender will end up following,” he said.  

“The major banks are not going to stay out of that and watch the market move while they sit on their hands. It’s going to happen - possibly as soon as the next week, but very likely within the next four weeks.”

RELATED: Meet the online lenders saving Aussies millions

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