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Investors to face rate hikes

By Staff Reporter
9

Despite predictions of further RBA rate cuts after the federal election next month, home owners could be stung with a rise in mortgage costs.

1300HomeLoan managing director John Kolenda says it’s not surprising that the RBA kept its cash rate at the record low of 1.75 per cent yesterday, after the 25-basis-point reduction in May.

Mr Kolenda said the central bank could lower official rates again at its next meeting on 5 July, three days after the federal election.

However, he cautioned that further rate cuts by the RBA could be negated by banks lifting their home loan interest rates out of cycle due to cost-of-funding and compliance issues.

“The banks have been waiting until the election is out of the way before making any moves independently of the RBA,” he said.

“They want to lift rates in response to rising funding costs and the additional costs they face for the extra compliance and regulatory increase on reserves they will have to have in place by the end of June.”

Mr Kolenda said the recent attention from both sides of politics, and the federal opposition’s pledge to hold a royal commission into Australia’s banking system, have also tied the banks’ hands on rates until after the election.

“While the RBA has room to cut its cash rate further due to the two-speed economy and subdued consumer confidence, any future reduction is likely to be negated,” he said.

“Banks will look to increase their rates at the next opportunity, most likely in the second half of the year once the election is out of the way.”

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