Addressing the 2015 Economic and Social Outlook Conference in Melbourne last week, Mr Stevens noted that over the course of 2014 and 2015, effective rates on most loans tended to decline by more than the cash rate, reflecting both declining funding costs and increased competition to lend.
“The actions of those banks that have lifted mortgage rates over recent weeks reverse a little under half of this year's decline for floating rate mortgages for owner-occupiers and have no effect, at this stage, on the 15 per cent of loans with fixed rates,” he said.
“For investors in housing, these actions and those a month or two earlier reverse the effects of this year's monetary policy easing but, of course, this was the lending that had been growing most quickly.”
Measuring across the total loan book, Mr Stevens said the rate hikes are the equivalent of roughly half of one 25-basis-point monetary policy change.
“They take back perhaps a quarter of the extent of interest rate easing seen since the start of this year, and a smaller proportion of the total easing in lending costs seen over the past two years,” he said.
“For mortgages, this increase is from the lowest rates that any current borrower will have ever seen. As it is, there are still a number of mortgage products with rates not much above 4 per cent, even a few advertising a ‘3’ before the decimal point.”
Mr Stevens also highlighted that a significant proportion of owner-occupier households are ahead of schedule on mortgage repayments: “In large part because these households did not lower their payments as interest rates fell,” he said.
“Most of these households are unlikely to need to part with extra cash each month as a result of the recent interest rate changes. (Equally, many of these households were probably not boosting spending as interest rates fell, instead allowing their loan principal to fall faster.)
“As for the general environment, according to business surveys, conditions outside mining have been slowly improving, not deteriorating. So it is not as though the increases in mortgage rates are compounding the effects of a serious deterioration in economic conditions overall.”
Mr Stevens said his “preliminary assessment” is that the macroeconomic effect of rate hikes in themselves “may not be large”, but rather “is one part of a much bigger and evolving landscape”.
He added that RBA will keep the out-of-cycle rate increases and the broader lending landscape under careful review.
“Let me be clear that in making these comments I am not offering an endorsement of the banks' actions,” Mr Stevens said. “Nor should an assumption that shareholder returns must not decline as a result of the effects of supervisory measures, or any other factor, simply be accepted without question.
“The ‘right’ rate of return for bank shareholders is, as others have observed, an open question. It is not a constant of the universe.”
All four major banks have increased their variable rates in recent weeks, as have the regional banks and a handful of non-major lenders. This week BOQ became the last of the regional lenders to announce an increase to its variable home loan rates for owner-occupiers and investors.