The head of the economics unit at BIS Oxford Economics has said that banks "know no one likes them" but would be subject to a huge backlash if they continue to increase standard variable rates out of cycle.
Richard Robinson told Mortgage Business that the central bank “doesn’t need to be in a hurry” to raise rates, given the current economic climate, adding: “At the moment, I think a lot of people – and this is including some in the markets – they focus too much on the cash rate. What they should really be focusing on is the lending rates.”
If banks continue to increase their standard variable rates out of cycle, there will be a “huge scream, there’ll be a loud hue and cry”, Mr Robinson said.
However, he noted that the banks have “seen all this before, they sort of know no one likes them …They managed to escape a royal commission, so they’re just going to do what they think they’ve got to do and I think that will have a huge impact”.
He said that if banks move to widen the margin between the RBA cash rate and their standard variable rates further, the RBA would have to cut rates to “keep lending rates where they are”.
The suggestion that mortgagors should focus their concern on what their lenders are doing with interest rates, rather than the Reserve Bank of Australia’s movements, was backed by 1300 Home Loan managing director John Kolenda.
According to Mr Kolenda, there is little latitude for the RBA to move rates from its record low 1.5 per cent, but added that mortgage holders should be wary of regular out-of-cycle rate hikes coming from the banks.
Mr Kolenda said: “Banks have been hitting home owners with interest-only loan [increases] and investors with rate increases, while there have been some token reductions for owner-occupier principal and interest rates.”
Suggesting home loan holders consider refinancing, he commented: “Although rates are at historical lows, complacency can still end up costing mortgages holders thousands of dollars a year.”
While the official cash rate has remained steady, investment and interest-only borrowers have been met with a series of out of cycle rate hikes by lenders in the last few months.
The hikes follow on from the 2017-18 federal budget, which announced a levy on the five major banks. In March, the Australian Prudential Regulation Authority also introduced new guidelines designed to limit new interest-only lending to 30 per cent of all new residential lending, while also limiting investor lending to a benchmark of 10 per cent growth.
[Related: Banks grow books by $9.2bn]