Invest
Mortgage rate rise on the cards
Investors should prepare for higher mortgage rates if the RBA continues with its long-term policy of keeping the cash rate on hold, one economist has warned.
Mortgage rate rise on the cards
Investors should prepare for higher mortgage rates if the RBA continues with its long-term policy of keeping the cash rate on hold, one economist has warned.
Shane Oliver, chief economist at AMP Capital, told Nest Egg that the current blowout between the three-month bill rate and the RBA cash rate is putting pressure on the banks to increase mortgage interest rates.
According to Mr Oliver, the gap between the banks’ funding costs has reached 0.57 per cent, compared to the norm of 0.23 per cent, with banks finding it difficult to raise money in the wholesale money markets, which contribute to around a third of their funding.
“The gap between the two has widened, and that is starting to put upwards pressure on bank mortgage rates again,” he said.
“If the Reserve Bank doesn’t want to see higher mortgage rates because they’re worried about the economic impact, then the only way to offset that is to cut the cash rate. Which would then lead to lower bank deposit rates and enable banks to cut their mortgage rates again.”
Record low mortgage rates set to rise
He said the Reserve Bank has been able to push mortgage rates to their current record lows by lowering the cash rate to offset when the cost of raising money in the bank bill market has gone up.
As a result, Australia is in the midst of a long-term period of low mortgage rates due to the record low cash rate.
However, this borrowing climate may already be changing, Mr Oliver warned, as some banks have begun passing on the increased cost of funding to their consumers in the form of higher mortgage rates.
RBA unlikely to cut cash rate in short term
Moving forward, Mr Oliver said this could spell bad news at a time when house prices are falling and economic growth is slowing.
“The Reserve Bank may not want to see interest rates rising at a time when growth is under threat and consumer spending is weak, and therefore the way to counteract that is to cut the cash rate,” he said.
However, Mr Oliver revealed he does not foresee the RBA cutting the cash rate for some time yet.
“On the very short term, the likelihood of this happening is very low, although obviously if the cost of funding continues to rise then the pressure from that source on the Reserve Bank to cut the cash rate increases,” he said.
“The more likely scenario won’t cut until the second half of the year.”
Property
Why it now costs 130% more to service a mortgage than 3 decades ago
The lifetime cost of owning a home has increased by over 130 per cent in just three decades, new research has revealed. ...Read more
Property
Using the 30/30/3 rule for home buying during uncertain times
Thinking of buying a home? Uncertain economic times may have you double guessing your purchase, but the 30/30/3 rule can help you make this a reality. ...Read more
Property
Rental yields reach decade high, but not all markets move at the same pace
Changing consumer preferences towards lifestyle destinations and a lack of supply have led to record national price growth, albeit price fluctuations vary region-to-region, fresh figures show. ...Read more
Property
What younger Australians are getting wrong about home loans
As young Australians look to fight the odds and take their first step onto the property ladder, more and more are making easy mistakes. ...Read more
Property
More than 1 in 3 Aussie properties are cheaper to buy than rent
Having a mortgage is even more likely to be cheaper than renting than it was pre-pandemic, new research has revealed. ...Read more
Property
How will the moratorium on evictions impact landlords and tenants?
The NSW government has announced a 60-day moratorium on evictions, with landlords gifted incentives to reduce the burden on COVID-19-affected tenants. ...Read more
Property
Young renters cry out against ‘lack of respect’ in rental market
Young Australians have expressed dismay over the perceived discrimination within the rental market as the wealth divide forces them into long-term renting. ...Read more
Property
Note investing: A way into the property market for younger Australians?
As the traditional route into the housing market becomes more difficult, could unorthodox alternatives like note investing bridge the gap? ...Read more
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Are property prices set to crash? Should you jump on board the fintok craze? And how to prepare for this tax time
Listen now
Property
Why it now costs 130% more to service a mortgage than 3 decades ago
The lifetime cost of owning a home has increased by over 130 per cent in just three decades, new research has revealed. ...Read more
Property
Using the 30/30/3 rule for home buying during uncertain times
Thinking of buying a home? Uncertain economic times may have you double guessing your purchase, but the 30/30/3 rule can help you make this a reality. ...Read more
Property
Rental yields reach decade high, but not all markets move at the same pace
Changing consumer preferences towards lifestyle destinations and a lack of supply have led to record national price growth, albeit price fluctuations vary region-to-region, fresh figures show. ...Read more
Property
What younger Australians are getting wrong about home loans
As young Australians look to fight the odds and take their first step onto the property ladder, more and more are making easy mistakes. ...Read more
Property
More than 1 in 3 Aussie properties are cheaper to buy than rent
Having a mortgage is even more likely to be cheaper than renting than it was pre-pandemic, new research has revealed. ...Read more
Property
How will the moratorium on evictions impact landlords and tenants?
The NSW government has announced a 60-day moratorium on evictions, with landlords gifted incentives to reduce the burden on COVID-19-affected tenants. ...Read more
Property
Young renters cry out against ‘lack of respect’ in rental market
Young Australians have expressed dismay over the perceived discrimination within the rental market as the wealth divide forces them into long-term renting. ...Read more
Property
Note investing: A way into the property market for younger Australians?
As the traditional route into the housing market becomes more difficult, could unorthodox alternatives like note investing bridge the gap? ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
