RBA on hold but mortgage rates might rise

Melissa Jenkins
(Australian Associated Press)

Home loan interest rates are expected to continue to rise despite the central bank keeping the official cash rate on hold, some economists say.

The Reserve Bank of Australia on Tuesday held the official interest rate steady at a record low 1.5 per cent, where it has been since August 2016.

Property analytics firm CoreLogic head of research Tim Lawless said homeowners aren’t off the hook, as banks are likely to hike rates independently.

While the cash rate has remained on hold, mortgage rates have been climbing since September 2016.

“Arguably, higher mortgage rates have done much of the heavy lifting in slowing down home value appreciation and cooling investment demand,” Mr Lawless said.

“There is an expectation that mortgage rates will continue to rise, despite a steady cash rate setting, as lenders adjust their credit policies to accommodate the latest round of APRA mandates.”

The Australian Prudential Regulation Authority (APRA) in March directed banks to cap interest-only loans at 30 per cent of new residential mortgages, which prompted a round of rate increases by the major lenders.

Recent figures suggest the property market may be losing steam, with the CoreLogic Home Value Index showing capital city home prices rose by just 0.8 per cent in the June quarter, the lowest quarterly growth rate since December 2015.

In a further sign of a slowing market, building approvals for new homes fell 5.6 per cent in May, the second drop in three months, according to the Australian Bureau of Statistics.

ANZ senior economist Daniel Gradwell said he expected further falls in residential building approvals and a dampening of the property market throughout 2017.

Meanwhile, home values in Sydney, Melbourne, Brisbane and Perth all rose in the week to Sunday, but Adelaide recorded a 0.2 per cent dip, according to CoreLogic figures.

Auction clearance rates have been trending lower since peaking at 78.4 per cent in February, with the latest rate at 70.3 per cent.

CAPITAL CITY PRIVATE TREATY MEDIAN PRICES

HOUSES

Sydney – $995,000

Melbourne – $715,549

Canberra – $626,000

Darwin – $541,000

Brisbane – $515,250

Perth – $505,000

Adelaide – $435,000

Hobart – $370,000

Combined capitals – $700,526

UNITS

Sydney – $737,500

Melbourne – $537,200

Darwin – $472,500

Perth – $415,000

Canberra – $409,000

Brisbane – $380,000

Adelaide – $323,000

Hobart – $286,500

Combined capitals – $582,464

Source: CoreLogic Property Market Indicator Summary week ending July 2, 2017.

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