ANZ: Mortgage rate hikes imminent

Mwahaha. Here’s a discussion that we are yet to have. There’s no doubt in my mind that the RBA and APRA will be ‘hands off’ the property market this year probably much of next. But, there is also the bond market to worry about. As ANZ says:

  • Fixed-rate mortgage rate hikes will happen in H2, 2021 owing to an end to RBA supports such as the Term Funding Facility (TFF).
  • As funding costs rise, so will rates, even more in 2022.
  • ANZ sees macroprudential controls this year.

Meh. I addressed the last question yesterday. The economy will not be strong enough or financial risks high enough to tighten this year.

As for out-of-cycle mortgage rate hikes, that’s more possible. Aussie banks are exposed to the rising offshore interest rates that we are seeing offshore via their wholesale funding needs. The duration is typically five years on this debt so yields are still enjoying a little protection from global central banks sitting on the short end of the curve. But the move is definitely up.

One reason things may be delayed is that the amount of wholesale bank debt has been falling over the past year as deposits surged and even more was refinanced at the RBA TFF:

Good times for banks funding costs

Good times for banks funding costs

This has consistently dropped aggregate funding costs:

That said, the market has now turned towards higher yields and if the RBA does remove the TFF after June then funding costs will begin to climb higher. Then again, it will know that it is implicitly egging on out-of-cycle hikes by doing so so perhaps it will extend the facility. Certainly, I do not expect the RBA to lift its yield curve control policy.

So, there are offsets and doubts about whether it will be an issue. But weighing against that, yields are definitely rising now and will likely keep doing so for a few months yet as we pass through ‘peak tantrum’ on US inflation.

I’ll take the under on the ANZ’s position. But it is probable that out-of-cycle hikes are coming in the next twelve months to fixed-rate mortgages and floating not long after that just not as far as ANZ says.

Certainly, before the RBA’s cash rate lifts in 2024.

David Llewellyn-Smith
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Comments

  1. BoomToBustMEMBER

    With house prices rising around 20% in Sydney at this rate something will need to change.

  2. TFF ends at the end of this financial year and then back to international credit markets… no more 0.1% financing rate.
    Banks are on a tear because this is a limited opportunity to make out like the bandits they are.

  3. Lol you got no idea.

    The majors can issue 5 year senior debt at bbsw+0.35% now if they needed to. That’s the cheapest margin over bbsw ever. 18 months ago it was bbsw+0.85%, in 2016 when Brexit was being voted on it was bbsw+1.15% and these frns will roll off this year)

  4. There’s a construction crash coming in 2022-23. Not only will mortgages be more expensive, there’ll be a gaping hole in demand because of all the projects that have been brought forward

  5. And graph 3 suggests deposits (which they pay fa for) has been the bigger driver of funding – not TFF. What happens when we draw those down for this consumption boom everyone thinks is coming?

    • boomengineeringMEMBER

      Easy fix, Just bring on cashless society and halt withdrawals. Oh that didn’t pass so plan B or C or

  6. – Higher bond yields are a sign the “economic boom” is over. Risk appetite is waning.

  7. forgive me because I’m new to all this. I’m looking at buying a house late october, what is a macroprudential and how will it effect me? TIA

  8. Here’s a discussion that we are yet to have…??
    Someone hasnt been reading the comments section of their own blog posts. We have all been having this conversation for a bit now.