Interest rates on mortgages could be even lower in a year, analysts predict

Interest rates on mortgages could be even lower in a year, analysts predict

By Business Reporter David Taylor

This time next year, your mortgage repayments could be lower, some analysts are predicting.

Key points:

  • Some smaller lenders, such as BoQ, have already raised certain mortgage rates this year
  • Many analysts are expecting bank funding costs to ease later this year, giving scope for lower mortgage rates
  • A growing number of economists are tipping Reserve Bank interest rate cuts this year

Banks often justify raising the interest rates on their mortgage products by pointing to the rising cost of funding these mortgages.

But several analysts have told RN Breakfast funding costs for banks look to be heading down over the next six months.

“People with principal and interest, owner-occupier home loans will be paying less this time next year than they are today,” Shaw and Partners banking analyst Brett Le Mesurier said.

The reason why banks are not moving to cut rates now, analysts argue, is because of the big swings we have seen on share and bond markets recently.

Those swings are related to developments on many major international macroeconomic and geopolitical fronts, including the US-China trade war, a debt hangover in Europe and the possibility of a hard Brexit.

It has made lending a riskier activity, and created a sense of nervousness in the money markets.

That has seen banks charging each other more to lend to one another.

“What’s happened at the moment is that funding costs have increased, therefore the chance of them cutting their home loan rates across the board is very small at the moment,” Mr Le Mesurier said.

All four big banks confirmed to RN Breakfast the cost of sourcing money has gone up in the past few months.

Westpac told the ABC, “funding costs are up since November”, while ANZ said, “funding costs have increased again in recent months, resulting in an increase to overall bank-funding costs compared to three months ago”.

Banks ‘flush’ with deposits, pushing rates down

However, while banks draw on a number of different money pools to fund home loans, they mostly rely on deposits.

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