Pressure On Home Rates Starts To Build
The Age
Sunday April 10, 1994
A CLEAR message from the behavior of several major financial institutions over the past few days is that after almost 18 months of relative stability, home mortgage rates are once again on the rise.
While banks and other home lenders have gone out of their way to play down general fears of an imminent blow-out, there is little doubt that all mortgage interest rates will move higher before the end of this year.
Most analysts, including senior lending executives from the major banks, agree that mortgage rates will come under stronger upward pressure towards the end of this year as the economic recovery gathers more pace.
No one is predicting a return to the ludicrous rates of the late 1980s when some borrowers were paying in excess of 18 per cent.
Although none of the banks are willing to go on the record, the view of many lenders is that a rise in the order of one per cent is on the cards by the end of the December quarter, which will push rates above 10 per cent. On a loan of $100,000 over 25 years, that translates to around $40 per month.
To keep the lid on inflation and ensure the recovery does not turn into another 1980s-style boom, the Federal Government is expected to use interest rates as a blunt tool to ensure conditions don't get out of hand.
Proof of the old adage that nothing lasts forever was brought home in living color last week as several banks and home lenders quietly moved to increase the interest charges on a number of their fixed-rate home loan products.
Advance Bank, Bank of New Zealand, Challenge Bank, Citibank, the Commonwealth Bank, GIO, and St George Bank all took decisions to pass on the rises in their own cost of funds resulting from recent volatility on the professional money market.
As the table on Money Extra page two shows, the banks moved to increase the rates on their one to five-year fixed rate products by between 0.08 per cent and 0.75 per cent.
With the exception of GIO, all the organisations that lifted their fixed rates left their variable home loan interest rates alone. In most cases banks chose not to touch their one-year fixed or capped rates, which have been the most popular and competitively priced products for new and existing customers seeking to refinance.
However, given that interest rates are likely to rise gradually over the medium term, longer-term fixed-loan products offering rates under 10 per cent will be an attractive option.
© 1994 The Age