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RBA Stuck in the Starting Gates

Lenders lifting their variable interest rates out of cycle has left the Reserve Bank of Australia (RBA) stuck in the starting gates with its Melbourne Cup interest rate decision, says mortgage broker network 1300HomeLoan.

1300HomeLoan Managing Director John Kolenda said the major banks and other lenders for the past few weeks have been increasing variable interest rates by up to 20 basis points due to additional compliance and provisioning costs.

Mr Kolenda said while the RBA‘s Cup Day cash rate call was to leave official rates at a  record low of 2.0 per cent, a decision by the central bank to further lower rates may not have had much significance for many mortgage holders.

“The RBA’s decisions have rapidly become redundant in the current lending environment,” Mr Kolenda said. “Westpac was the first to raise rates out of cycle and other lenders have followed suit with more increases likely in the months ahead.

“Any future RBA cuts are likely to be negated by the actions of the banks which are adhering to the Australian Prudential Regulation Authority (APRA) new regularity requirements that will increase the cost of providing mortgages.

“Further rate relief from the central bank may also not be passed on in full by lenders and we may see increases in rates across the board due to potentially increased funding costs and pressure on the major banks to meet the APRA requirements by mid-2016. Banks might also face additional funding costs due to the issues and economic challenges faced globally.”

Mr Kolenda said the lending landscape changed a few months ago with the decision of many lenders to raise interest rates for investment and interest only loans as well as revising their borrowing conditions.

“As we predicted earlier last month, we are likely to see increases of up to 50 basis points in out of cycle movements by many banks as they adjust their pricing to accommodate those additional costs,” he said.

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