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Don’t relax yet, mortgage rates likely to move up

mortgage rates, move up, arrow up

The Reserve Bank of Australia has announced its official cash rate for July, but industry members are reminding borrowers that banks can move independently.

While the RBA decided to leave the cash rate on hold at 1.5 per cent for the 23rd consecutive month, mortgage-holders would be best served by preparing for future rate hikes, Tim Lawless, head of research at real estate analysis group CoreLogic, has said.

“Economic conditions remain reasonably stable, housing market growth continues to slow, household debt is at record highs, and inflation remains around the lower end of the RBA target range. With this scenario as a backdrop, the hold decision from the RBA was widely anticipated,” Mr Lawless said.

“However, focus is now moving to mortgage rates, where we are increasingly seeing upwards pressure from overseas funding costs. Already, smaller banks and non-banks, who are generally more exposed to wholesale debt costs, are pushing interest rates higher for select mortgage products.”

Larger banks are more resilient to higher funding costs thanks to domestic deposits, but also face rising pressures.

“It is likely margin pressures are becoming evident across the big end of town as well,” he said.

Nevertheless, Mr Lawless said these “early signs” of upwards pressure haven’t resulted in any significant change to average variable rates at the big banks.

"Borrowers, particularly owner-occupiers with principal and interest loans, should continue to expect a low mortgage rate over the medium term,” he said.

According to RateCity spokeswoman Sally Tindall, the number of mortgagors facing higher repayments in July is as high as 362,800, noting that 13 lenders have hiked rates recently.

“Hundreds of thousands of home loan customers [are] about to be hit with higher repayments this month, even though the RBA has left the cash rate on hold in July,” she said.

“If you take an average rate hike of 25 basis points, for a $300,000 home loan you’re looking at paying an extra $540 per year – that’s not small change.

“For the people who bought at the peak of the market and are overstretched already, they are not going to be able to find those dollars easily.”

Don’t relax yet, mortgage rates likely to move up
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