Banks risk ‘unintended consequences’ from mortgage repricing

By |

Banks risk “unintended consequences” from their latest round of mortgage repricing, warn analysts from Morgan Stanley.

Aussie banks may enjoy some near-term earnings growth as a result of their recent mortgage rate increases, but their lending growth is likely to slow. Moreover, the banks’ share price valuations “ignore the risk of unintended consequences”. 

In a conservative assessment of prospects for the banking sector last week, Morgan Stanley analysts warned that the domestic mortgage market is entering a new era, with the banking industry facing more burdensome capital rules, higher mortgage rates, tighter lending standards, and credit rationing.

“We now expect the major banks’ investment property loan growth to drop to 1 per cent in fiscal 2018 due to APRA’s new cap on interest-only loans, restrictions on higher-risk lending, more differentiated repricing and the prospect of further measures to prevent the build-up of household debt and address housing affordability concerns,” said Richard Wiles, analyst at Morgan Stanley. 

Wiles further warned that the advent of higher mortgage rates and tighter lending standards at a time of sky-high household debt and unfavourable conditions in the labour market could lead to unintended consequences. 

Meanwhile, Annette Beacher, head of Asia-Pacific research at TD Securities, reiterated her view that the Reserve Bank should lift interest rates later this year to limit a potentially “severe macro-economic correction”. 

Beacher thinks the regulators’ renewed focus on curbing interest-only mortgage loans is unlikely to contain the “overall relentless rise in owner-occupied debt,” because it impacts only a fraction of the appetite for housing, while not affecting demand from retirees, self-managed superannuation funds, and foreign buyers. 

“Unless broader macro­prudential tools are deployed, a small rate rise soon could limit what could be a severe macro-economic correction down the track,” she said.

Related stories:
Are Regulator Concerns About House Prices Overblown?
APRA's New Supervisory Measures For Banks Take Hold


With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now

Top Suburbs : reservoir , flemington , rockville , windale , thebarton

go back

Get help with your investment property

Do you need help finding the right loan for your investment?

When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs.

Just fill in a few details below and we'll then arrange for a local Aussie Mortgage Broker to contact you and work out what features or types of loans are right for your needs. We'll even help with the paperwork. Plus an appointment is free.

How soon would you like a mortgage?
What is your Annual Household Income i $
Do you currently own any Investment Properties?
Do you own your own residence?
How much equity do you have in all your current properties?
First Name
Last Name
Where do you live?
What number can we reach you on?
E-mail address
We value your privacy and treat all your information seriously - you can check out our privacy policy here