ABC The Business Does Mortgage Rate Rises

A segment from The Business last night which discussed the rising mortgage rate environment.

The big four banks and many of their smaller competitors have raised interest rates in step with each other but out of step with the Reserve Bank. Investors will experience the biggest rises, as banks seemingly heed the warning of regulators to cool the heated property market.

They referred the to Trump effect on funding costs, the differential repricing of investment loans, and suggested that more rises are due, irrespective of what the RBA might do.

 

Property prices continue to soar in an already hot market

From The NewDaily.

Latest property price figures have given home owners reason to celebrate and first home buyers even more reason for despair.

Latest data from CoreLogic Home shows prices in Australia’s main cities have leapt 3.7 per cent since the start of the year, with Sydney and Melbourne predictably higher than the national average.

Residential prices in the already-hot Sydney market jumped 5.3 per cent since January 1, with the median price hitting $950,000, and the median price for units now $740,000.

Melbourne property prices have risen 4.4 per cent this year, with the median house price at $710,000 and the unit price at $525,000.

Perth was the only capital where prices have fallen, down 1.1 per cent.

Meanwhile, Hobart remains the cheapest market with median house prices at $365,000 and unit prices at $306,500.

The news comes a week after former Liberal leader John Hewson declared Australia was experiencing a property bubble and also follows a Reserve Bank statement noting there had been “a build-up of risks associated with the housing market”.

The bank referred to rising property prices in Melbourne and Sydney, the “considerable” number of apartments coming onto the market over the next few years, resurgent growth in investor lending, and household debt rising faster than household income.

CoreLogic also reported that the proportion of settled auctions — a key benchmark of demand — was also up.

The national auction clearance rate jumped to 77.1 per cent in the week to March 26, from 74.1 per cent the previous week and well up from the 70.9 per cent in the same week in 2016.

But home buyers could soon find themselves squeezed from two sides, as interest rates rise for both owner-occupiers and investors.

“There’s only one way for interest rates to go in my reading, and that’s up,” Martin North, analyst with Digital Finance Analytics, told The New Daily.

“I’ve believed for some time that by the end of the year interest rates on owner occupied housing loans will rise by 25 to 50 basis points and for investor housing it will be between 75 to 100 basis points. That is irrespective on any moves the Reserve Bank might make on rates.”

The escalation that has seen mainland capital house prices rise 13.1 per cent in a year and as much as 19.8 per cent in Sydney is putting pressure on buyers despite low rates.

“Around 20 per cent of all owner-occupiers are suffering mortgage stress, and if rates were to rise one percentage point that would rise to 24 per cent, Mr North said.

CoreLogic’s data also showed that there were 3147 auctions last week— the second highest so far in 2017, and up from 2916 the previous week.

 – with AAP

AMP Bank Lifts Mortgage Rates

AMP Bank has announced changes to its mortgage lending rates for both owner occupiers and investors.

Effective 3 April 2017, variable interest rates for interest-only loans for existing customers will increase by 15 basis points for owner-occupied loans and 28 basis points for investment loans.

In addition, effective 31 March 2017 for new customers and 3 April 2017 for existing customers, owner occupied principal and interest variable rate loans will increase by 7 basis points. As a result, the AMP Bank Professional Pack owner occupied variable rate loan will increase to 3.92% p.a. for new customers for loans of $750,000 and above.

AMP Bank is encouraging customers with interest-only loans to switch to principal and interest repayments where appropriate. Until 30 June 2017, AMP Bank will waive the switch fee for customers moving to principal and interest repayments.

Sally Bruce, Group Executive AMP Bank commented: “We are managing our portfolio in a very active market but are committed to providing competitive rates to our customers to help them achieve their property goals.

“We also want to encourage customers to move to principal and interest repayments where it’s appropriate, as there is a great opportunity to access lower interest rates and repay your loan faster.

“Our decisions on rates are not taken lightly and reflect wholesale funding costs, the need to maintain a balanced portfolio and the market environment,” she said.

St George Lifts Mortgage Rates

St George has followed the other majors with lifts in variable mortgage rates, and those with investment loans are hit the hardest. They are also offering a “free” switch from interest only to principal and interest repayments until June.

Effective on 8 May 2017, St George will be increasing the following variable rates for:

  • Owner Occupier Interest Only Home Loan variable rates: by 0.08% to 5.50% per annum (comparison rate 5.67% per annum*)
  • Residential Investment Principal & Interest Home Loan variable rates: by 0.23% to 5.78% per annum (comparison rate 5.95% per annum*)
  • Residential Investment Interest Only Home Loan variable rates: by 0.31% to 5.98% per annum (comparison rate 6.15% per annum*)

*Comparison rates are based on a loan of $150,000 over a term of 25 years.

… And Bendigo Bank

At its regular fortnightly pricing committee meeting, Bendigo Bank decided to increase its residential investment variable interest rate by 0.25% p.a. to 6.01% p.a. Standard residential variable mortgage rates for owner-occupiers remain unchanged at 5.48% p.a. The change is effective as of 31 March 2017 for new and existing loans. A further decision was made to adjust the LVR cap on residential investor loans to 80% effective 27 March 2017.

Bendigo and Adelaide Bank managing director Mike Hirst said the adjustment reflects the requirement to meet regulators expectations in dampening demand for investor lending. Additionally, this change also reflects the bank’s view that recent ultra-competitive mortgage pricing needs to return to levels that better reflect the current market funding and capital costs.

“As has been well telegraphed to all Australian authorised deposit taking institutions, there is an expectation that as lenders, we must manage within the regulator’s 10 per cent growth speed limit for investor loans.

“When setting these rates we’ve tried to carefully balance the interests of our mortgage customers, those who earn money through deposits and those who invest in our Bank,” Hirst concluded.

Footnote: Customers on a residential investment variable interest rate with a $250,000 loan will see their repayments increase by $39.96 a month (principal and interest home loan over 30 years).

… And CBA Makes 4

Commonwealth Bank has today announced an increase in its Variable Home Loan interest rates and Viridian Line of Credit products effective Monday 8 May 2017.

– The standard variable rate for owner-occupier home loan customers paying principal and interest will increase 3 basis points to 5.25 per cent per annum.

– The standard variable rate for interest only owner-occupier home loans will increase by 25 basis points to 5.47 per cent per annum.

– The standard variable rate for principal and interest investment home loans will increase by 24 basis points to 5.80 per cent per annum.

– The standard variable rate for interest only investment home loans will increase by 26 basis points to 5.94 per cent per annum. This change is separate and in addition to the announcement on 15 February 2017, when we announced an increase to the Standard Variable Rate for Interest Only Investment loans, which will be increasing to 5.68% from 3 April 2017.

– Viridian Line of Credit rates will increase by 0.26% p.a. to 6.08% per annum for loans with a personal and Investment purpose. This change is separate and in addition to the announcement on 15 February 2017, when we announced an increase to the Viridian Line of Credit Rates, which will be increasing to 5.82% from 3 April 2017.

– The Equity Unlock for Seniors Rate remains unchanged.

Our P&I Standard Variable Rate for Owner Occupiers remains the equal lowest standard variable rate among the major banks.

ANZ Tweaks Mortgage Rates

ANZ today announced an update on variable home loan and business loan interest rates.

Principal and interest owner-occupier home lending

  • Variable interest rates for the 80% of owner-occupier borrowers who repay principal and interest on their standard variable home loan remain unchanged at 5.25%pa.

Investor home lending

  • The variable interest rate paid by property investors will increase by 0.25%pa from 5.60%pa to 5.85%pa effective 31 March.

Interest-only home lending

ANZ will introduce new variable interest rates for customers choosing to pay interest-only on their home loans.

  • New lending. From 22 April, variable interest rates for new investor and owner-occupier home loan customers who choose to repay interest-only will increase.

– Investor variable rate home loans (interest only) will increase by a further 0.11%pa from 5.85%pa to 5.96%pa.

– Owner-occupier variable rate home loans (interest only) will increase by 0.20%pa from 5.25%pa to 5.45%pa.

  • Existing lending. From late July, increases applied to new lending will apply to existing investor and owner-occupier variable home loan customers who choose to repay interest-only. ANZ will be writing to existing interest-only variable home loan customers from May to provide them with advance notice of the change and the option of switching to repay principal and interest on their loan at a lower interest rate without incurring a fee.

Business lending

  • For business borrowers, business variable rate indices will increase by 0.08%pa.

ANZ Group Executive Australia Fred Ohlsson said: “We are pleased to be in a position to keep rates unchanged for the 80% of owner-occupier home borrowers who pay principal and interest on their loan.

“This is a clear signal that we are open for business for Australians either looking to buy a home or looking for a better deal.

“The changes we are making in home lending affect investors and borrowers who only repay interest on their loan. These changes reflect a need to closely manage our regulatory obligations, our portfolio risk and the competitive environment.

“We recognise the day-to-day challenges that home-owners face with their house-hold budgets. We believe this is a balanced decision that reflects the range of regulatory and risk factors, and the pressures on family budgets.

“This is why we are providing our customers with interest-only home loans additional notice and the option to switch to repaying principal and interest to take advantage of the lower rate,” Mr Ohlsson said.

US Mortgage Rates Climb Again

From Mortgage News Daily.

Mortgage ratesspiked, big-time, today.  Underlying bond markets had already moved higher in rate overnight, but the trend was taken to a new level by an exceptionally strong employment report from ADP.  Although this isn’t the big jobs report (we’ll get that on Friday), many market participants treat the ADP numbers as one of several advance indicators of Friday’s jobs report.  Sometimes it doesn’t register a response, but when it beats the forecast by as much as it did today (298k vs 190k), markets can’t help but adjust their trajectory ahead of Friday.

 

The net effect was the sharpest move higher in rates in several months, slightly outpacing last Wednesday’s rout.  Moreover, with the exception of a modest improvement on Monday, rates have moved higher every single day since February 27th.  In just over a week, the average conventional 30yr fixed quote is up approximately a quarter of a percent for most lenders.  Stronger lenders are offering 4.25% on top tier scenarios while many moved up to 4.375% with today’s weakness.

We think there is growing pressure to lift international capital market rates higher, which will create upward momentum on rates in Australia.

 

Households warned to expect more out-of-cycle rate rises

From The NewDaily.

A figure deep in the Commonwealth Bank’s latest billion-dollar result heralds more rate pain for indebted households in 2017, even if the Reserve Bank doesn’t touch the cash rate.

Australians who can afford it are saving like crazy for fear the big banks will keep hiking mortgage rates. And it seems they are right to be worried, as rising wholesale and regulatory costs tempt lenders to claw back funds from owner-occupiers.

On Wednesday, CBA posted a half-year (July-Dec) net profit after tax of $4.89 billion.

But its net interest margin (NIM) – the difference between what the bank pays for funding and what it charges on loans – fell to 2.11 per cent in the first half of the 2017 financial year, down from 2.14 per cent in the full 2016 fiscal year.

Add in the requirement from regulator APRA that banks hold more capital to protect against a crisis and there are strong signs that borrowers will soon be slugged.

Finance analyst Martin North said he expected the big lenders to continue lifting rates this year, even if the RBA cash rate stayed at a record-low 1.5 per cent.

“The real conversation here is not what the RBA does because the official cash rate has very little to do with what real mortgage holders are experiencing. We have already seen, and we will see more, out-of-cycle interest rate rises,” Mr North told The New Daily.

Much of the recent media focus has been on a crackdown by CBA and its subsidiary, BankWest, on investor lending. CBA slammed on the brakes even harder on Wednesday by lifting its interest-only home loan rate, targeted at investors, by 12 basis points to 5.68 per cent.

The average Australian may rejoice at this, as many believe investors squeeze out first home buyers.

The fear, however, is that the big banks, deterred by the regulator from writing too many investor loans and forced by competitive pressures to leave deposit rates alone, will target owner-occupiers for what Mr North called “margin repair”.

fixed variable ratesAs the chart above shows, fixed and variable rates have been pushed very low by the Reserve Bank’s heavy cuts to the official cash rate in recent years, intended to stoke the economy during the post-GFC slump.

But if readers look closely at the bottom right of the chart, they’ll see rates are trending up.

Data supplied to The New Daily by RateCity shows that while the average variable rate at the big four banks crept up by only one basis point over the last six months, the average fixed rate is now six basis points higher than in September last year.

The bigger concern for Australians is rising variable rates. About 85 per cent of current borrowers are on variable, which means any rise will hit their household budgets immediately.

owner occupier ratesIn a recent research note, JP Morgan identified rising mortgage servicing costs as the “most immediate challenge” facing Australian households.

The bank also noted that households seem to be stockpiling a “handy cash buffer” in their bank accounts “to help insulate against unexpected income and liquidity shocks”.

But Mr North noted that not all households are so well prepared.

“There are some households who are very well protected because they’ve been repaying more than they needed to on their mortgages when interest rates dropped and they’ve been saving more,” he said.

“But there are other households that are actually up to their gills in debt and have no ability to effectively make those forward bets on the market.

“And it’s not just battlers on the outskirts of cities. There are some younger, more affluent people who have bought high-rise apartments quite recently who’ve got really large mortgages and are highly leveraged and have got almost no other assets.”

household savings relative to debt

Watch the central banks

The excuse from the big lenders is that it is getting more expensive to borrow wholesale funds from overseas.

Despite what readers may have heard, the Reserve Bank’s official cash rate – the one it announces with much fanfare on the first Tuesday of every month except January – is not the only impact on the cost of lending.

This was demonstrated in a soon-to-be-published, five-year study by Australian academics Drs Simon Cottrell and Sigitas Karpavicius, a draft of which has been provided to The New Daily.

Using a sample of 1711 bond issues in five currencies by Australia’s big four banks, the academics found that the cost of wholesale funding (which contributes about 40-50 per cent of the total funding of banks) is mainly driven by international monetary policy, while the impact of the RBA’s cash rate is “insignificant”.

The US Federal Reserve is starting to lift rates, and other important central banks may soon follow, which means wholesale funding costs will continue to rise, if this study is correct.

So the big lenders have a good excuse to push up rates outside of the RBA cash rate – and households have good reason to be worried.

US Mortgage Rates On The Up Again

From Mortgage Daily News.

US Mortgage rates moved higher for the 4th straight day today, following Fed Chair Janet Yellen’s congressional testimony.  It wasn’t that Yellen’s speech or Q&A contained any major surprises.  Rather, bond markets (which dictate rates) were simply looking for some indication of “sooner vs later” with respect to the Fed’s next rate hike.  Her comments were generally more in line with “sooner.”  Bond markets responded by quickly trading rates to higher levels, resulting in multiple “negative reprices” for mortgage lenders this morning.

Bonds calmed down in the afternoon, and ended up clawing back roughly half of the morning’s losses by the end of the day.  Many lenders were consequently able to offer “positive reprices”–bringing rate sheets part of the way back to yesterday’s levels.

Despite the afternoon improvements, essentially every lender is in worse shape today vs yesterday.  The average top tier conventional 30yr fixed quote is back up to 4.25%–a move that was already in-progress yesterday.  Today’s rates are the highest since February 3rd.