Home loan interest rates to rise

Credit: stratman

More lenders are likely to increase interest rates on their home loans, following in the steps of Bank of Queensland Limited (ASX: BOQ) earlier this week.

That’s despite the Reserve Bank of Australia (RBA) keeping the official cash rate on hold at 2% this week.

Bank of Queensland raised its standard variable rate by 12 basis points (0.12%) for owner occupiers, while investors were slugged with an even higher 25 basis points hike effective from April 15.

1300homeloan director John Kolenda has told that borrowers who have home loans with other lenders should brace themselves for more increases, whether the RBA makes any changes to the cash rate or not.

I’m not surprised by BOQ’s move and I expect more lenders to follow suit,” he told, adding, “Over the next quarter I can see lenders will be increasing their rates because of the cost of funding issue which doesn’t appear to be easing and they need to meet new APRA requirements.

BOQ’s CEO Jon Sutton also said that the bank was forced to raise rates, due to a competitive market and funding headwinds. Wholesale funding costs for the banks have been rising, and the banks can either wear the cost or pass it through to home loan borrowers.

It has become a common occurrence for banks to raise rates out of cycle with the RBA since last year. Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) all moved their home loan interest rates higher, partly to slow down the growth in lending to investors, but also to recoup the costs of being forced to hold more capital.

The big four banks, in particular, appear to be able to raise mortgage rates as and when they like, with little fear that customers will switch. Australians don’t seem to care that they are paying much higher interest rates for their big four bank loans than is available from smaller and non-bank lenders. The banks are much more likely to worry about whether customers can continue repaying their loans at higher rates, than them switching to a cheaper lender.

Foolish takeaway

If you have a mortgage, don’t be surprised if your interest rate is hiked in the next few weeks or months.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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