Banks raise rates faster than the RBA as they claw back margins

afr.com:

Home loan interest rates charged by the major banks to new borrowers are outpacing official cash rate increases, as lenders shift from writing mortgages at below the cost of capital to safeguarding profits and dividends.

The country’s largest four banks have lifted the rates offered to new customers by 0.32 percentage points more than the Reserve Bank’s official rate rises since the start of the year on basic home loan products, according to data provided by Finspo, a mortgage broker.

CBA has had the highest out-of-cycle rate increases for new customers this year. Oscar Coleman

That is a significant turnaround from the cut-throat pricing last year, when those rates increased by an average of only 2.77 percentage points, 0.23 percentage points less than the central bank’s 3 per cent in rises.

Aggressive mortgage discounting last year pointed to banks attempting to grow their loan books at all costs, but lenders more recently have been recouping margins to bolster earnings. This is applying additional pain to mortgage-holders, who are now paying $29,200 more a year on a $1 million loan since the central bank started lifting rates in May last year.

“We are definitely seeing a shift towards banks managing margins over volume growth over the last six months,” said Finspo chief executive Angus Gilfillan. “The big banks are doing some heavy lifting for the RBA on new loans. I expect the trend to continue over the next few months.”

Lower competitive intensity shown by higher mortgage rates – and the end of cashback offers at most of the big banks – will release pressure on the RBA as it comes to the end of its fastest monetary policy tightening cycle on record. There is a growing expectation that the cash rate will be left