Fitch Ratings on the mortgage rate hikes by major Australian lenders

(via Bloomberg)

  • Recent lending rate increases by Australia's major banks were prompted by expectations of imminent macroprudential tightening and of higher funding costs on the back of further US rate hikes.
  • The increases should help cool growth in mortgage lending to more vulnerable borrowers, but high household debt and rapid property price appreciation are already key risks to the performance of the banking sector

ANZ, CBA, NAB and Westpac all increased mortgage lending rates (the main focus was on those loans to investor & interest-only mortgages) in recent weeks.

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  • The continuing pick-up in investor activity in the property market is likely to be the main target in the next round of macroprudential tightening
  • Fitch expect regulators to impose stricter mortgage-lending standards and perhaps lower the cap on annual growth of investor mortgages from the current 10%
  • Fitch expects RBA to start increasing its policy rate in 2018
  • Households are sensitive to increases in lending rates due to high debt, low wage growth and the vast majority of Australian mortgages being based on variable interest rates
  • The household debt/disposable income ratio reached 187% at end-September 2016, which is very high by global standards