Interest rate comparison website, RateCity, has estimated that Australian mortgage holders are facing sizeable increases in repayments on the back of out-of-cycle rate rises by lenders. From The Australian:
…mortgage holders with loans of $500,000 would be hit with a bill for an extra $358 each year if their lender increased rates by 10 basis points, which has been the most common rate rise since non-major lenders began hiking rates in March…
Borrowers with a mortgage of a million dollars are forking out an additional $715 a year, or about $60 a month…
It comes as funding costs shot higher, surging to their highest level in seven years, as the bank funding cost benchmark — the spread between the 90-day bank bill rate and the overnight index swap rate — continues to widen.
“It’s only a matter of time before one of the big four banks hike,” said RateCity director of research Sally Tindall.
“While the threat of negative publicity has kept them at bay, eventually the pressure on their profit margins will be too great.
Meanwhile, savers are copping it, via Domainfax:
In the past fortnight, Australia’s two biggest banks quietly inflicted a much bigger hit on savings account interest rates than they would dare make to mortgage rates.
It received little attention in the media, but the Commonwealth Bank and Westpac slashed 0.3 percentage points off “base” rates for online saver accounts to a miserable 0.5 per cent. Similar cuts have occurred at rival big four banks in the past year, even though official interest rates have not budged.
Confusingly, however, a growing number of smaller banks are starting to pay more for term deposits. The industry is also grumbling about the increase in funding costs – a trend that generally pushes deposit rates up, now down.
Last week, Martin North from Digital Finance Analytics warned that small increases in mortgage rates – to the tune of just 10 to 15 basis points – could push roughly a million Australians into mortgage default:
“Today 975,000 households across Australia with owner-occupier mortgages are right on the edge now”…
“And there are around 50,000 who are already over the edge and are looking like they could default.
“If rates went up by 0.15 percentage points, that would go up closer to the round million”…
Morgan Stanley cites two factors at play that are driving-up bank funding costs, namely:
- Upward pressure on the Bank Bill Swap Rate (BBSW); and
- The ongoing decline in household deposit growth:
There’s another factor, as well. International deposits have pulled-out of Australia, driven in part by the less favourable spread between Australian interest rates and those overseas, replaced by more expensive wholesale sources of funding:
With credit continuing to tighten following the banking royal commission, the whole system will be tested.
