Out-of-cycle home loan hikes ‘no big deal’
AUSTRALIA'S central bank regards the out-of-cycle rate hikes unleashed by the big mortgage lenders in recent weeks as a "small deal", economists say.
And the downturn in house prices is spreading from the top end of the market to low and mid-priced housing in another unsettling development for the property sector, analysts say.
The Reserve Bank on Tuesday announced it was keeping the cash rate on hold at 1.5 per cent - its all-time low - for the 26th month in a row.
It was the RBA's first rate decision since two of the big four banks last month hiked their variable home loan rates, adding more than $400 a year to repayments on a typical $400,000 mortgage.
In his statement on Tuesday declaring the cash rate would remain on hold, RBA governor Philip Lowe noted "some lenders" had increased their variable home loan rates "by small amounts" in response to higher funding costs.
Dr Lowe also noted some banks had cut rates for new customers only.
Those wanting to buy a house to live in could still borrow, he said, as he highlighted efforts by regulators to instead put the brakes on the investment property market.
"Growth in credit extended to owner-occupiers remains robust, but demand by investors has slowed noticeably as the dynamics of the housing market have changed," Dr Lowe said.
"Credit conditions are tighter than they have been for some time, although mortgage rates remain low and there is strong competition for borrowers of high credit quality."
In a report for investors, economists at HSBC said Dr Lowe's statement showed the RBA board members "still see the recent lift in mortgage rates as a small deal for the economy rather than a big deal".
On September 5, ANZ and the Commonwealth Bank bother hiked their variable home loan rates without a cue from the central bank. Westpac had led the pack, hiking its rates before the previous RBA meeting, while National Australia Bank kept its rates on hold.
The trio that lifted rates cited rising costs for funds they borrowed offshore to lend out here.
Also in his statement, Dr Lowe also noted the softness in the biggest property markets.
"Conditions in the Sydney and Melbourne housing markets have continued to ease and nationwide measures of rent inflation remain low," he said.
Separately yesterday, a team of analysts at investment bank Morgan Stanley said in a report for investors that the downturn in house prices was spreading.
"Up until the past few months, this has been concentrated in the most expensive segment of the market," said the analysts team, led by Chris Nicol.
"A broadening of price declines has negative implications for both the length and economic impact of the downturn."
Over the past few months, "the price weakness has broadened out into the other segments, with all tiers declining in price for the first time since 2011", Mr Nicol said.
"The price of less expensive housing tends to be less volatile, and price falls much rarer - declines in this segment suggest more persistent weakness in the property market," he said.
AMP Capital chief economist Shane Oliver said there was no need for the RBA to lift the cash rate merely to return it to more "normal levels".
"A premature hike would be akin to shooting yourself in the foot to be able to practice going to the hospital," Dr Oliver said.
Westpac economist Bill Evans said markets appeared to be pricing in about a 40 per cent chance of a rate hike by the end of next year, but he expected the cash rate to stay on hold through 2019 and 2020.