RBA rate hikes aim to curb bank mortgage growth

“While we are now experiencing a return to more normal interest rates than has been seen in recent years; rising rates will impact the budgets of many households,” Hyman said.

Signs that new lending is off its highs come as financial markets expect the Reserve Bank of Australia to raise the cash rate from 1.35% to 1.85% on Tuesday in a bid to for reducing inflation.

For the Big Four banks, rising interest rates tend to widen profit margins, but analysts also expect higher bad debts, along with slower growth in the $2 trillion mortgage market.

Macquarie analyst Victor German forecasts real estate loan growth to fall sharply to 2.2 per cent a year by mid-2023 from nearly 8 per cent annual growth in June, citing the experience of New Zealand, where loans fell in response to higher rates.

“If we go into an environment where credit growth will be slow for a long period of time, it will have a substantial impact on the earnings outlook and the valuation of banks,” said German, who has more bearish estimates on the credit. growth than many other analysts.

Morningstar analyst Nathan Zaia forecast mortgage loan growth to slow to 3 percent to 4 percent in 2023, due to declines in home prices and customers’ ability to borrow.

Charging

Zaia said net interest margins, the difference between funding costs and what banks charge for loans, were more “material” to major banks than credit growth.

Macquarie Group chief executive Shemara Wikramanayake acknowledged the likely slowdown in loan growth ahead of the bank’s annual meeting on Thursday, saying: “In our banking and financial services business we are seeing interest rates rise, possibly volume growth fades a bit in the market. , although we continue to have a good growth in volume”.

Anthony Waldron, chief executive of Mortgage Choice, which is owned by the REA Group, said he thought the refinancing market would remain strong because many borrowers would face higher rates as lower fixed-rate loans mature. “People have been at a rate that in some cases started at a 1 and all of a sudden they’re going to be at a 3,” Waldron said.

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