Mortgage rate hikes could force RBA’s hand

A 25 basis point out-of-cycle rate hike in owner-occupied mortgage rates could pressure the Reserve Bank to make another cash rate cut, according to a leading economist.

NAB and Westpac last week announced increases to their home loan rates for both investors and owner-occupiers. While investors copped the steepest out-of-cycle hikes of up to 28 basis points (Westpac), owner-occupiers received a 7 basis point lift from NAB and a 3 basis point hike from Westpac.

“With global funding costs for banks having increased on the back of higher bond yields, out-of-cycle rate hikes for owner-occupiers seemed likely at some point,” AMP Capital chief economist Shane Oliver said.

“Changes in investor rates have less impact on spending in the economy because they are tax deductible and investors are less sensitive to rate moves, but changes in owner-occupier rates will cause more agitation,” he said.

“However, 3-7 basis point hikes are unlikely to have much economic impact and like the out-of-cycle rate hikes seen in November 2015 are likely to be ignored by the RBA.

“That said, if banks hike owner-occupier rates by 25 basis points or more then the RBA may have to consider offsetting it with another cash rate cut.”

Mr Oliver said that changes in the cash rate remain the main driver of bank mortgage rates.

ASIC chairman Greg Medcraft slammed the banks during a panel discussion in Sydney yesterday, labelling the level of competition in the mortgage market as “disgraceful”.

“The banks say that they are increasing their rates because of increase regulatory costs and that they are going to charge customers more,” he said.

“But they don’t do that in the corporate sector because they can’t – they have a locked-in margin above a benchmark. I do think competition in our mortgage market would be a good thing for consumers.”

[Related: 'Disgraceful': ASIC boss slams mortgage market]

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