Mortgage shock beckons for 2021

More than half of experts and economists surveyed by Finder believe that Australia’s banks will lift variable mortgage rates next year out of cycle with the Reserve Bank of Australia (RBA):

When asked when Aussies could expect banks to make the move, half of the respondents said banks were likely to announce out-of-cycle rate hikes during the first half of 2021.

“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,” said Finder insights manager Graham Cooke.

“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.”

A quick look at the data suggests that the banks could instead lift fixed mortgage rates out of cycle:

As shown above, the spread between average discount variable mortgage rates and deposit rates was 3.0% in July, which was whisker below the long-term average spread of 3.1%.

By contrast, the spread between average 3-year fixed mortgage rates and deposit rates was a record low 1.7% in July, which is well below the long-term average of 2.7%.

Regardless, pressures on the banks’ net interest margins, particularly as mortgage arrears rise after repayment holidays end, are likely to place upward pressure up mortgage rates (other things equal) as banks attempt to claw back profitability.

If such a scenario does eventuate, it will add another headwind to an already ominous storm facing Australia’s property market in 2021 as repayment holidays and emergency income support ends.

Leith van Onselen
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Comments

  1. happy valleyMEMBER

    And while the banks are raising variable mortgage rates, they’ll drop deposit rates further and unilaterally invoke NIRP, so they can commit the ultimate r.pe of depositors – how good is banking?

  2. Variable vs fixed.. depends on where most of their loan book is sitting. Cant just increase the fixed if only a small portion of their book sits there.. else you would have to raise by a LOT meaning noone will take it up and will stay on variable giving banks nothing.
    Seriously though, if this does eventuate, bcnich needs to start a religion worshipping the sun. I will join.

    • Every living organism and plants on earth depend on the sun for survival.It beats me how the sun not control the events on earth.People need to undertake a self realisation journey to understand how the life on this planet is connected with the rest of the universe.

    • darklydrawlMEMBER

      Bcnich has been warning of interest rate rises for a few months now. I still have my money on Easter 2021 for things getting ugly – Subject to change if the Government panic and extend the current settings.

        • No, neither. Due to the increased risk premium for our banks. This has been well documented on the comments in the blog.
          And to being right for the wrong reasons doesn’t really apply to bcnich when the calls are based on Sunspot activity. Like, how do you even decide whether you are right or wrong because of Solar flares??? Weird? Yes.. Right? Yeah.. somewhat so far.
          So you can go all righteous on this, but a true follower doesn’t question such things 😉

  3. Mortgage, mortgage, mortgage
    Don’t you know you’re going to shock the mortgage, hey, hey
    Shock the mortgage, hey yeah
    (Mortgage) Wheels keep turning
    (Mortgage) Something’s burning
    (Mortgage) Don’t like it but I guess I’m learning
    Shock, shock, shock
    Watch the mortgage get hurt, mortgage
    Shock, shock, shock
    Shock!

    https://www.youtube.com/watch?v=LwX59AbLRRs

    I need a doc?
    X?

    • Yeah i still feel like these things are always around.. i.e. each week some d1ckhead always writes about mortgage rates going up. Safe to ignore.
      Although, banks profitability are being stretched and savers have already taken it for years. The shareholders took some pain last half with their dividends slashed. This was new that shareholders had to reduce their take from the banks. After savers and shareholders, come mortgage holders. The only other place left is mortgage holders..
      I mean i reckon they will look at firing a bunch of people first or at the same time to drive the point they are hurting too.
      Still.. things turn around on a dime in this space.

      • darklydrawlMEMBER

        NAB are certainly taking the “let’s offload as many staff as possible” approach right now, although it won’t save them. All these moves are delaying tactics at best.

  4. PalimpsestMEMBER

    This is terrible – those poor Banks. We need to find some way to get low cost funds to them. Some sort of Government assistance beyond JobKeeper lest they somehow share in the general downturn, and face the sort of drop in profitability faced by small and medium businesses, and many of their customers. I, for one, am deeply concerned. Otherwise they will have no choice but to bring on a rate hike that will make the property market worse. Only the most cynical would interpret this as blackmail.

    • Jumping jack flash

      End game is banks collect taxes from the people and then hand debt to the government in return to pay for their stuff.

      Interest is basically a tax anyway

    • We could call it BankKeeper. Most of it would be used to pay dividends to their shareholders, allowing them to cash out all those franking credits. See, trickle down economics really does work.

  5. Jumping jack flash

    Interesting.
    Raising rates put of cycle, considering their total interest income hasn’t reduced by all that much?

    Ohh right, the debt deflation! 2.4 trillion in debt down to 1.8. I thought that wasn’t a thing, but that would probably do it.

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