Why are some banks raising their interest rates while the official rate remains low?

Why are some banks raising their interest rates while the official rate remains low?

Bank lending rates are on the rise and the question many of our clients are asking us is, why?

While the Reserve Bank continues to keep the official cash rate at historic lows, and many commentators agree that an increase in official rates in the short term is unlikely, how can a rate rise be justified?

Interest rate

Many investors have experienced tighter lending conditions and increased interest rates already, as the Australian Prudential Regulation Authority (APRA) has sought to dampen investment growth.

However, the latest interest rate rises have also hit owner–occupiers. The justification from lenders for increasing rates is to reflect their higher wholesale funding costs, which increased earlier this year and have remained elevated since then. This has meant that the banks’ own borrowing has become more expensive.

As the banking industry is still feeling the fallout from the ongoing Royal Commission into banking conduct, it may have resulted in many lenders being hesitant to pass on these increased borrowing costs – until now.

According to the banks, as they had been wearing the increased cost of wholesale lending it meant that the latest rate hike was a relatively big one.

And it may not be the last.

So, is now a good time to consider a fixed rate?

Many of our clients, both investors and owner–occupiers, are concerned about whether rates will continue to rise.

While none of us can predict where rates will go, we do suggest that now is a good opportunity to reassess your current loans and to consider whether it’s worth locking in at least a portion of your home loan in case further rises do occur.

Fixed rates aren’t suitable for everyone, so call your Smartline Adviser if you’d like to discuss if it could be right for you.

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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.