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Banks might increase mortgage rates before the RBA
Aug 11, 2009 - Boris Chan
Homeowners should prepare themselves for mortgage rates that will go up in leaps and bounds as the economy strengthens.
The Reserve Bank is highly unlikely to cut the official cash rate as the domestic economy has performed much better than expected during the global economic downturn.
Financial markets have already penciled in a rise of 25 basis points in the cash rate to 3.25 per cent in November.
Mortgage Rates will go up, but when?
John Kolenda Loan Markets Group executive director expects that the major banks will start raising their mortgage rates before any move by the central bank because of increasing funding costs.
Mr. Kolenda stated that people repaying home loans were better off paying as much as they possibly could in mortgage repayments. He also stated that the RBA would most likely raise rates in large chunks, following the swift pace of rate cuts between September 2008 and April 2009.
Dr. Wylie from the Melbourne Business School said that it was unlikely that the Reserve Bank would increase rates before the end of the year.
Kieran Davies chief economist of the Royal Bank of Scotland felt that the Reserve Bank's cash rate would stay on hold until the end of the year and then rates would start to return upwards to a more normal level next year.
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