Banks ready to beat RBA to rate hikes

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The mortgage industry could see an overall increase in interest rates as a result of difficulties in obtaining wholesale funding.

Lisa Montgomery, head of marketing and consumer advocacy at Resi, suggested it is likely the major banks will be forced to increase interest rates out of cycle with the Reserve Bank's recent interest rate rises. She also warned that non-bank lenders and second-tier banks might be forced to follow suit.

"The question of wholesale funding is nothing new: the major banks have been talking about funding costs since before the GFC," she said. "I think it is likely that rates will go up out of cycle, and if they do, it's also likely that will follow on to non-bank lenders, as most non-bank lenders get their funding from major banks anyway."

Montgomery reckons the situation is generally brightening, albeit slowly.

"The situation in Europe is really the catalyst for the concern at the moment, and the appetite of investors generally isn't as buoyant as it was before the GFC. That said, sentiment does seem to be improving, although there's no way we'll see pricing at the levels that we did before the GFC."

Second-tier lender Bendigo and Adelaide Bank also thinks out-of-cycle interest rate rises might be a possibility.

"At the time the GFC hit, Bendigo and Adelaide Bank restructured its balance sheet. Now we are largely funded by our retail business and RMBS, so we are not as reliant on wholesale funding as the majors," said Lauren Treacy, a spokesperson for Bendigo and Adelaide Bank.

"However, the cost of funding is reflected across all markets and this will eventually have an impact on the price a consumer pays. If the cost of funding for a bank rises, the price a consumer pays will also rise, because the cost to deliver those products or services has increased.”

A number of bank spokespeople have recently gone on record saying that funding conditions are deteriorating and that major banks may have to raise interest rates regardless of what the RBA decides at its regular monthly meeting.

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