Banks raise variable mortgage rates independent of the RBA: Finder RBA Survey

Banks may increase variable mortgage rates to recoup pandemic-induced losses despite a stagnant cash rate, according to surveyed experts.

In this month's Finder RBA Cash Rate Survey, while all the experts surveyed expect a cash rate hold in September (40/40), more than half of those who weighed in (57%, 16) believe that banks will raise their variable mortgage rates despite the Reserve Bank indicating that the cash rate will remain motionless for some time.

When asked about the expected time frame for this movement, half of the respondents (50%, 8) said banks are likely to announce out-of-cycle rate hikes during the first half of 2021.

Graham Cooke, insights manager at Finder, said that prospective variable rate increases mean future homebuyers should tread cautiously.

“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."

“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."

“A flat cash rate does not mean homeowners are in the clear. We learned this during the most recent period of cash rate stagnation. While the rate held at 1.25% 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% to their budget to prevent rate shock,” Cooke concluded.