Australia’s largest bank has announced a large rise in one of its interest rates, which is a big pain for borrowers.
Australia’s largest bank has announced a large rise in one of its interest rates as a signal that borrowers will continue to feel the pain.
Financial analysts are surprised by the size of the Commonwealth Bank’s fixed rate hike of 1.40 percentage points for both homeowners and investors coming into effect on Thursday.
“Today’s fixed rate hikes at Australia’s largest bank are anything but typical. We haven’t seen occasional hikes of this size and CBA scale on our records,” said RateCity’s research director, Sally Tindall.
“The bank is responding to the rising cost of fixed-rate financing and a market that refuses to believe that the RBA will stop raising the cash rate by around 2.50 per cent.”
Tindall said the only fixed rate below the 2 percent CBA it offered less than a year ago seemed like a “distant dream.”
“Today the bank’s lowest fixed rate is just under 5 per cent, while most are well above 6 per cent,” he said.
Craig McDonald of CBM Mortgages said CBA’s Thursday move was the biggest increase the market had seen.
“We’ve been seeing all banks continually raise their fixed rates over the last few months, but overall it’s been an increase from 0.25% to 0.5% of their existing rates,” he said.
“I’m now expecting all the other major lenders to follow suit next week, as they don’t normally leave such a big gap between competitors.
“What we’re also seeing are banks offering more aggressive prices at their variable rates.”
The change comes less than a fortnight after the CBA increased new and existing variable-rate lending rates by 0.50 percentage points.
Following the Reserve Bank’s decision to drastically raise the cash rate in May and June to 0.85% after its historic low imposed to counter the economic shock of the Covid-19 pandemic.
A third consecutive rate hike is expected next Tuesday after the RBA board holds its July meeting.
RBA Governor Philip Lowe said last week that a 0.75 percentage point rise in interest rates “would not be on the table” this time around.
Speaking at a central bank hearing in Zurich, Lowe suggested a 0.25 or 0.5 percentage point increase in the letters.
Financial comparison website Steve Mickenbecker of Canstar said lenders had not wasted time following the RBA with interest rates on home loans.
He said most lenders had transferred 0.75% total to borrowers since the May cash rate hike.
“I should anticipate the same if we see another increase in July,” he said.
“With borrowers already dealing with minimum wage increases along with petrol, energy, groceries and higher priced bills, it’s no wonder they’re worried.
“There are still good rates available below 2.50 per cent, and refinancing at a lower rate will make the clock adjust to future increases in the Reserve Bank’s cash rate from a lower level “.
Read related topics: Commonwealth Bank