Pressure on wholesale funding costs and profit margins, coupled with looming regulatory changes may soon force banks to increase home loan interest rates, the head of the FBAA has warned.
Peter White, the CEO of the FBAA believes rate hikes could begin shortly and continue over the next 12 months.
“This is really the perfect storm for interest rate rises as banks look at softening the jump in the wholesale cost of funds that they lend out, like mortgage-backed securities and bonds,” White said.
“Those with money deposited in banks should be happy their interest rates have risen slightly but the flipside is the borrower will possibly have to carry the cost with an increase in home loan mortgage rates.”
White is now encouraging brokers to educate customers about the likelihood of home loan rate rises and discuss the possibility of refinancing under a fixed interest rate now.
“Brokers should be aware of what may happen and assess the most suitable outcome for customers if banks do increase the variable rate.
“There also is an argument to for splitting the loan and we know some lenders offer discounts with this type of package.”
The rising Australian dollar and increased compliance costs are other factors which seem set to force banks to increase home loan rates, White said.