• Economists believe the Big Four banks will lift their standard lending rates out of cycle within the next year
  • This comes after APRA announced tighter serviceability tests for home loans
  • Head of consumer research at Finder said, “those who aren’t on a fixed mortgage rate should stay alert."

In Finder’s latest RBA Cash Rate Survey, 50% of the economists believe the Big Four (NAB, Westpac, Commonwealth Bank, and ANZ) banks will lift their standard lending rates out of cycle within the next year.

Unsurprisingly, the RBA kept the cash rate on hold during their monthly meeting last Tuesday – something the central bank intends to do until at least 2024.

Head of consumer research at Finder Graham Cooke said a stagnant cash rate didn’t mean home loans wouldn’t get more expensive.

“Data from the RBA shows banks changed their rates seven times during the last stable period. Four of those changes were rate increases and they may well do it again.”

Graham Cooke

This comes after the Australian Prudential Regulation Authority (APRA) announced tighter serviceability tests for home loans, after finding more than one in five home buyers are now borrowing more than six times their incomes.

Mr Cooke said, “Those who aren’t on a fixed mortgage rate should stay alert to any changes from their bank, as it could mean substantially higher monthly repayments.”

Graham-Cooke-Finder
Graham Cooke, head of consumer research at Finder. Image – Twitter.

Refinancing to hurt lenders

The survey found nearly 1 in 3 experts see constant refinancing from mortgage holders becoming an issue for lenders soon.

Australian Bureau of Statistics’ head of Finance and Wealth Katherine Keenan said, “the value of refinancing between lenders was 60% higher in July 2021 compared to a year ago.”

“This reflected borrowers seeking out lower interest rates, particularly for fixed rate loans, and cashback deals across a large number of major and non-major lenders.”

Mr Cooke added, “while home owners are eager to make the most of record low interest rates, lenders are aggressively competing for market share with cashback offers up to $4,000.”

LMI is worth it

43% of the experts believe lenders mortgage insurance (LMI) is good value for buyers looking to get into property sooner.

Mr Cooke said, “there’s no doubt that avoiding paying an LMI premium will save you money, but consider what that ‘saving’ might cost you.

“LMI can add thousands of dollars to your home-buying costs, but it’s still worthwhile in certain circumstances.”

Suggesting if buyers wait an extra year to purchase a property and the value increases by the amount of an LMI, Mr Cooke said it may be better to pay the fee.

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