By George Lekakis*
The Reserve Bank [of Australia]'s high hopes of containing mortgage interest rates until sometime next year look to be crumbling from the sustained advance of wholesale funding costs.
Bank of Queensland and AMP Bank are the latest lenders to reprice home loans in response to movements in wholesale benchmarks, following similar moves last week by IMB Bank and Auswide.
BoQ has boosted rates on its range of owner-occupied and investment loans by up to 15 basis points after citing rises in wholesale funding costs as the main reason.
“Funding costs have significantly risen since February this year and have primarily been driven by an increase in 30 and 90 day BBSW rates, along with elevated competition for term deposits,” said Anthony Rose, BoQ’s acting head of retail banking.
“While the bank has absorbed these costs for some time, the changes announced will help to offset the ongoing impact of the increased funding costs.”
BoQ’s exposure to movements in wholesale funding has increased this year because it has lost ground in the deposits market.
According to data published by APRA, BoQ’s overall deposit base declined by almost A$500 million in the five months to the end of May.
AMP Bank, a lender highly exposed to movements in wholesale benchmarks, has also raised rates by 40 basis points on interest-only loans for owner-occupiers and investors.
More lenders, particularly those without growing deposit bases, are expected to reprice in the next few weeks, according to mortgage experts.
“I think the rate rises are inevitable among non-deposit taking lenders,” said Steve Mickenbecker, the head of ratings at Canstar.
“It’s going to put pressure on the Reserve Bank because it’s going to find the market repricing well ahead of movements in the cash rate.”
Mickenbecker believes the four major banks will eventually reprice also, but their reduced reliance on wholesale funding give them some capacity to delay out-of-cycle rises.
The RBA has come under heavy criticism this year from banks and other lenders for allowing the spread between the official cash rate and market rates to widen.
While leading economists such as Westpac’s Bill Evans are not expecting an official rate rise before the second half of next year, lenders are questioning the wisdom of keeping the cash rate on hold while real cost of money rises.
Bendigo Bank chairman Robert Johanson believes the central bank has waited too long.
“They’ve been trying to do too much work with monetary policy,” he told Banking Day.
“I’m concerned that apart from the impact we’ve already seen on asset values, mortgage rates are going to break from the official cycle and will do so in a disruptive way.”
The funding pressures on lenders are emerging at an awkward time for the Turnbull Government, which is required to call a federal election within the next 12 months.
A series of out-of-cycle increases across the industry could induce a blistering political response from government politicians who are cognizant of the historical links between election outcomes and mortgage rate rises.
This story is a repost from Bankingday.com. It is here with permission.