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Analysts forecast out-of-cycle mortgage rate hikes

Lenders are expected to increase variable home loan rates despite cash rate inertia from the Reserve Bank, according to analysts.

Governor of the Reserve Bank of Australia (RBA) Philip Lowe has repeatedly insisted that the cash rate would remain unchanged for “some years to come”, with the COVID-19 crisis stifling progress towards the central bank’s employment and inflation targets.  

However, the results of a Finder survey of 40 analysts and economists have revealed that over half (57 per cent) of respondents expect lenders to lift mortgage rates out of cycle.

When asked about the timing of such hikes, 51 per cent predicted rate increases in the first half of 2021.

According to Graham Cooke, insights manager at Finder, forecasts for out-of-cycle mortgage rate hikes reflect the ongoing impact of the COVID-19 crisis on bank profitability.

“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,” he said.

“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.”


Pointing to previous trends, Mr Cooke noted that mortgage rate movements have not always aligned with changes to the cash rate.

“A flat cash rate does not mean home owners are in the clear. We learned this during the most recent period of cash rate stagnation,” he added.

“While the rate held at 1.25 per cent for 34 months starting in 2016, banks increased their variable rates 7 times.

“This means that homebuyers considering a variable mortgage should still factor in a potential repayment increase of 2-3 per cent to their budget to prevent rate shock.”

Unsurprisingly, all respondents expect the Reserve Bank to hold the official cash rate at 0.25 per cent at today’s monetary policy board meeting.  

[Related: Bank slashes variable rates]

Analysts forecast out-of-cycle mortgage rate hikes
Analysts forecast out-of-cycle mortgage rate hikes

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