Another official interest rate drop could be on the cards if the major banks follow Westpac and increase their home loan rates, according to some Australian economists.
On October 14, Westpac announced it would increase its variable mortgage rates by 0.20 percentage points on November 20. It claimed the rates increase was fuelled by new capital requirements. It’s widely expected that the Commonwealth Bank, ANZ, and NAB will follow, although representatives from the major banks are giving little away.
“I think we are very comfortable with the position we’ve got but obviously, as with all products and services, it’s something that you react to the market and review on an ongoing basis,” Andrew Thorburn, NAB’s chief executive, told news.com.au.
“We’ve made no decision on our rates, which remain on hold,” the Commonwealth Bank said in an official statement.
Shane Oliver, the chief economist of AMP Capital Investors, said Westpac’s rate rise increases the chances that the Reserve Bank of Australia (RBA) will reduce official interest rates when it meets in November, especially if the other major banks also increase their rates. He expects we’ll see official interest rates drop to another historic low of 1.75 percent on Melbourne Cup Day.
“The last thing the Australian economy needs right now is for homeowners with a mortgage to see a decline in their discretionary spending power,” he told news.com.au. “The major banks account for about 80 per cent of mortgages, so 80 per cent of those with a mortgage would have seen their rate go up,” he said.
His sentiments were echoed by Ric Spooner, chief market analyst for CMC, however Stephen Walters, chief economist for JP Morgan, isn’t so sure. He acknowledges the rate rise “tightens up financial conditions a little,” but believes its impact won’t be enough to inspire the RBA to decrease official rates. He expects interest rates to remain on hold until 2017.
Whether interest rates fall further or remain at their historic lows, it’s a great time to purchase an investment property. Contact Chase Edwards today to get an honest appraisal of your finances and learn how easy it is to kick-start your investment portfolio.