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Business

CBA boss warns of ‘short sharp contraction’ headed for Australian economy

The boss of Australia’s largest bank has warned that the economy is already declining and that a “short, sharp contraction” is on the way.

Late on Wednesday, the chief executive of the Commonwealth Bank of Australia, Matt Comyn, delivered the company’s annual results.

Although the CBA made an eye-watering $9.6 billion in profit over the last financial year, Mr Comyn warned that tougher times were on the horizon.

He told the Australian Financial Review that he predicted “a short, sharp contraction in the Australian economy.”

“We are definitely expecting a more challenging year ahead than we have seen in the last 12 months,” he added.

However, in some good news, the banking CEO believes a contraction is almost a certainty but a full-blown recession is less likely.

Australia is in the throes of an economic crisis as inflation rose to 6.1 per cent last month, the highest level it’s been for 20 years.

And for the first time in more than a decade, Australia’s central bank has had no choice but to increase the cash rate in a bid to stop rampant inflation.

For the last four consecutive months, the Reserve Bank of Australia has increased interest rates by 1.75 percentage points and Mr Comyn more rate increases will come.

Mr Comyn told the publication his bank predicts the cash rate to increase by another 75 basis points to sit at 2.6 per cent.

The cash rate is currently 1.85 per cent.

Once the cash rate hits 2.6 per cent, Mr Comyn said the economy would experience a contraction of 1.5 per cent.

He said he “hoped” that once the cash rate reached this point it would be enough to curb spending, adding “We need to see a slowdown in demand.”

Speaking to the ABC, Mr Comyn said “We do forecast recessions in the US, UK and Europe. We don’t believe that that’s the likely outcome in Australia.”

Already there are signs that Australians are splashing their cash less.

Mr Comyn said their customer data shows that spending is falling for both debit and credit cards.

This was significantly more for customers who had mortgages.

“It’s quite early post the immediate rate rises, [but] we are already seeing a downturn in spending across our customer base, both from a debt and credit perspective,” he said.

“Of course, that’s more pronounced with customers who have a home loan, and we expect that it will continue throughout the course of the calendar year.”

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Suburbs struggling the most amid RBA’s interest rate hikes revealed

An estimated one in five mortgage holders – or 551,000 Australians – will struggle to pay back their mortgage if interest rates continue to rise as expected.

Comparison site Finder found a whopping 20 per cent of mortgage holders will be in serious mortgage distress if their home loan interest payments increase by three per cent. Home loans have already increased by 1.75 per cent since May.

It comes as separate data from S&P Global revealed which suburbs in Australia are most at risk of defaulting on their home loans.

The Northern Territory came out as the worst state, with the highest percentage of mortgage holders more than 30 days behind on payments.

A fringe suburb in Perth topped the list in terms of debt overdue to the bank, while Sydney, Melbourne, Adelaide as well as some regional areas also received a poor rating.

Of even more concern was that the research was conducted before the Reserve Bank of Australia (RBA) starting increasing the cash rate, meaning these areas will be even more at risk of defaulting on their loans now.

For four consecutive months the RBA has hiked interest rates. Last week, after its August meeting, the central bank brought up the cash rate to 1.85 per cent.

The cash rate has already risen by 1.75 percentage points since May, following two years of interest rates sitting at a record low of 0.1 per cent.

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According to S&P Global, rising mortgage repayments have hit suburbs on the fringes of big cities the hardest.

Their research measured the weighted average of arrears more than 30 days past due on residential mortgage loans in publicly and privately rated Australian transactions.

The Perth suburb of Maddington, 20km from the city centre, topped the list of “Worst performing postcodes” in the report.

As of early April, 4.67 per cent of homeowners in Maddington are in arrears.

That was closely followed by Dolls Point, located in southern Sydney.

Of the mortgaged houses in that NSW suburb, 4.33 per cent are behind on payments.

In third place was another WA postcode, Byford, in Perth’s southeastern edge, with an arrears percentage of 4.16 per cent.

Western Australia had one more suburb on the list – Ballidu in the Central Midlands – while NSW had a total of four.

Bankstown and Castlereagh, from Sydney’s west and southwest, were also experiencing substantial pressure. Katoomba from the Blue Mountains, south of Sydney, also earned a spot in the report.

Victoria, Queensland and South Australia each had one suburb on the list – Broadmeadows in Melbourne’s north, Barkly in Queensland’s Mout Isa region and Hackham, an outer suburb of Adelaide.

A breakdown of each state showed that the Northern Territory was the most behind in its mortgage repayments, at a rate of 1.75 per cent.

Western Australia came in at 1.40 per cent, as of April this year, before interest rates started to be hiked.

Victoria received a score of 0.87 per cent while 0.85 per cent of NSW mortgage holders were also in mortgage arrears.

The ACT fared the best, with an arrears rate of only 0.33 per cent.

Overall, the national average was 0.71 per cent for Australia’s arrears rate, as of April.

“The swift pace of interest rate rises will create debt-serviceability pressures for households with less liquidity buffers and higher leverage,” the report noted, forecasting that sometime in the third quarter of this year a higher arrears rate would show up in new monthly date .

Finder also released a damning statistic about the state of Australia’s home loan debt.

A recent survey conducted last month concluded that more than half a million homeowners would be “on the brink” if interest rates rose by three per cent.

Of those, 145,000 Australis said they would consider selling their home if rates jumped because they would “struggle a lot” to repay them. That represents about five per cent of Australia’s mortgage holders.

The survey also found that 14 per cent of admitted respondents they might fall behind on their repayments or other bills.

Nearly half (48 per cent) would be able to manage, but would have to cut down on their spending, according to Finder.

Only a quarter of participants said a rate rise would not change their lifestyle or spending habits at all.

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CBA increases profit to $9.7 billion, says most customers can cope with rising interest rates

The Commonwealth Bank has announced a 9 per cent increase in profits, despite a fall in its margins.

The bank made a net profit of $9.7 billion over the 2021-22 financial year and its preferred measure of cash profit, which excludes a range of one-offs, rose 11 per cent to $9.6 billion.

The increase in profits came despite a steep fall in net interest margin (NIM) — the gap between the rate the bank pays to borrow money and the rate it lends it out at and its main source of profits.

NIM fell 0.18 percentage points to 1.9 per cent, driven by lower home loan margins in an ultra-low interest rate environment.

Analysts expect the NIM to grow as the recent jump in interest rates is passed on in full to mortgage borrowers but only in part to savers.

The bank made up for falling profit margins on its loans by growing home lending by 7.4 per cent and business lending by 13.6 per cent, although its growth in home lending was slightly below its competitors.

CBA has expressed confidence that its customers will be able to keep up their repayments in the face of rapidly rising interest rates.

It said two-thirds of its customers had direct debits above their minimum required repayments at the current level of interest rates, although this would drop to a quarter if the cash rate rose to CBA’s forecast peak of 2.6 per cent.

The bank also noted that more than a third of its mortgage customers were at least two years ahead in their repayments, with around half at least three months ahead

However, 22 per cent are only paying just on time, while a further 15 per cent are less than one month ahead.

CBA’s economists are tipping home prices to fall at least 15 per cent from peak to trough, largely because rising interest rates are reducing borrowing capacity.

Most households can only borrow about the same amount or less than they could in 2016, while property investors have seen their borrowing capacity cut.

Commonwealth Bank shareholders will receive a final dividend of $2.10 per share, taking the full-year payout from the bank to $3.85.

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Economists deeply divided over Reserve Bank’s likely interest rate trajectory

Deep divisions are emerging among some of Australia’s leading bank economists on their outlook for interest rates and the Australian economy.

In one camp are those, such as the economists at Westpac and ANZ, who believe that the cash rate target will pass 3 per cent before the end of this year.

Both are tipping the RBA’s benchmark official rate to peak at 3.35 per cent — it is currently 1.85 per cent — meaning interest rates would almost double from where they are, rising by another 1.5 percentage points over the next six months or so.

The cash rate target was just 0.1 per cent at the beginning of May.

In fact, Westpac’s chief economist Bill Evans is not only predicting the cash rate will get to 3.35 per cent, but arguing it must if the Reserve Bank is serious about bringing down inflation.

Westpac and CBA logos
Westpac is expecting the cash rate to hit 3.35 per cent, but CBA thinks it will top out at 2.6 per cent before falling next year.(abcnews)

“The key reason why we insist that a sharper slowdown in demand is required in 2023 is that a much stronger set of demand conditions … runs the risk of resilient high inflationary expectations,” he wrote in response to the RBA’s Statement on Monetary Policy, released on Friday.

The Reserve Bank used market forecasts of a 3 per cent cash rate to underpin its latest economic forecasts, which did not have inflation falling back even to the top of its 2–3 per cent target range until the end of 2024.

Mr Evans said those forecasts showed that the RBA should raise rates more aggressively, even at the expense of slower economic growth — Westpac’s modeling tips annual economic growth of just 1 per cent next year if rates hit 3.35 per cent.

“Such an approach would give the bank the best chance of managing this difficult task of returning inflationary expectations to more normal levels and deflating the current ‘inflationary psychology’ which is now at risk of taking hold,” he said.

Too many rate rises could ‘take the economy backwards’

Then there is the other camp of economists, represented by the Commonwealth Bank and NAB among the big four, who cannot see the cash rate getting above 3 per cent in the near future.

“I don’t think it’s likely to happen because I think the Reserve Bank, once they get the cash rate to around their estimate of neutral [somewhere near 2.5 per cent]will want to pause and actually see how the economy’s responding to the rate hikes that they’ve delivered,” CBA’s head of Australian economics Gareth Aird told RN Breakfast.

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Is Australia at risk of a recession? – Monday Finance with Michael Janda

“They are putting through a lot of tightening in a very short amount of time and, if they continue to hike at the rate that they’re doing and just keep going all the way to 3 per cent and even above that level, they’ re not going to be able to actually assess the impact that those hikes are having on the economy in that in that amount of time.

“Now, it’s possible that they end up taking the cash rate to those levels, but I think if they do that, they’ll end up reversing gear in the not too distant future because … we have a highly indebted household sector in Australia and rate rises of that magnitude will just put too many households under stress and I think that will ultimately take the economy backwards.”

The Reserve Bank has recently changed its language slightly to emphasize that “it is not on a pre-set path”.

“The size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labor market,” RBA governor Philip Lowe said after last week’s latest half-a-percentage-point rate rise .

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Australia

South Australians can soon buy their first home with low deposit on HomeStart loans

Owning a home could soon become a reality for more South Australians with a state-government backed lender lowering their minimum deposit requirements.

Eligible graduates will be able to apply for a home loan with HomeStart Finance with as little as 2 per cent deposit.

Successful applicants will not need to pay lender’s mortgage insurance — required by most lenders if home buyers do not have 20 per cent deposit — potentially shaving off thousands of dollars in upfront costs.

Dwelling prices in July have grown for Adelaide, Perth and Darwin while other Australian major cities dropped as interest rates surge.

Treasurer Stephen Mullighan said the loan could wipe months off savings plans of people trying to buy their first home.

“Rather than South Australians having to spend years and years trying to save 20 per cent deposit to get a loan with one of the big four banks, instead that time is now reduced perhaps to only months,” he said.

A man in a business suit speaking with another man in the background
SA Treasurer Stephen Mullighan says the loan scheme will open doors for more South Australians into the housing market.

Mr Mullighan said the deposit reduction for the HomeStart scheme would allow low-to-medium income earners an opportunity to compete at auctions.

He said the government was expecting the Adelaide housing market to stabilize as interest rates rise.

“Even though some of the heat is going to be coming out of the market, for the first time we’re going to be seeing South Australians armed properly so they can compete in the market,” he said.

He estimates more than 250,000 South Australians with a Certificate III or higher qualification will be eligible for the scheme.

The previous minimum deposit required for that loan is 3 per cent.

For a $400,000 home, loan applicants will only need to fork out $8,000 in deposit and for a $850,000 price tag, buyers will pay $17,000 instead of $25,500 in deposit.

for sale sign adelaide 2
South Australians will be able to get their homes sooner with HomeStart dropping their minimum deposit requirement.(ABC News: Meagan Dillon)

Electrician Robert Thiel and hospitality worker Beth Mayfield, who are currently renting at Lockleys, say the change will help the couple get into the housing market sooner.

“Any amount you can save as a potential home owner is life-changing,” Ms Mayfield said.

“I never thought it would be possible for myself, to be honest, so it’s really exciting that it might be something really attainable for us.”

Ms Mayfield said her rent has increased in recent months, encouraging her to consider becoming a home owner.

The HomeStart graduate loan will be offered from Tuesday.

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Interest rates, inflation: Expert reveals four ways you can save money fast

Inflation is through the roof, interest rates are rising and many families are struggling to keep up with their mounting bills.

Finding ways to reduce financial stress can be overwhelming.

For many people, the figures themselves are difficult to grasp — but they know it means they have to tighten their belts.

The Reserve Bank of Australia this week increased the cash rate target by 50 basis points to 1.85 per cent.

Annual CPI inflation also increased to 6.1 per cent in the June quarter, due to higher dwelling construction costs and automotive fuel prices.

So what can you do to relieve your financial pressure?

Curtin Business School instructor and financial planner Elson Goh told NCA NewsWire there were four key ways people could save money.

REFINANCING YOUR LOANS

Mr Goh said everyone with a loan should first contact their current lender to try to get a better deal.

“It is often more costly for a lender to acquire a new customer than to retain an existing one,” he said.

“Go into a bank branch and introduce yourself to the lending manager. It can be easier than dealing with a call center representative.”

Mr Goh also recommends people use a mortgage broker.

“A good broker will negotiate a better deal with your current lender and present other suitable opportunities,” he said.

“Your current lender may respond more favorably if your case is presented well.

“For example, it is pointless to be asking your lender to match the rate that your colleague at work was talking about when their loan size is $800,000 while yours is only $350,000.

“You need the right information such as estimated value of your property and whether or not you have 20, 30 or 40 per cent equity in your home.”

Comparison websites can be a useful tool but Mr Goh warns they are not perfect.

“You have to be cautious as some products may be heavily promoted on these sites and not every lender is represented,” he said.

“Additionally, you cannot focus on just the interest rate or the comparison rate, as there are other things like fees, loan features, loan term and product flexibility that must be considered.

“If you are refinancing your home loan, be mindful of the remaining term of your loan.

“If you have had the property and loan for say five years, and you take up a new loan for over 30 years again, you may be delighted that the monthly repayments are much lower and seemingly more affordable.

“But if you only pay the minimum repayments, you may end up paying more interest over the entire duration and take longer to be mortgage free.”

SWITCHING YOUR SUPERANNUATION

The main types of super funds are employer, retail, industry and self-managed.

Mr Goh said before making a switch you should seek advice if you have a defined benefit scheme, constitutionally protected fund, or benefits paid by the employer.

“You will not be able to restore your entitlements once you switch out to another fund,” he said.

“This can also apply to any insurance policies that you currently have in force within your existing fund.

The tax office website is a good place to start your research.

“However, it is futile to chase after returns as past performance is not a good indicator of future outcomes,” Mr Goh said.

“What you should consider is to ensure that you are paying for services and features that you need and check if the fund is investing at a risk level that you are comfortable with.”

INSURANCE AND UTILITIES

Insurance includes personal, home and content, motor vehicle and health, among others

Mr Goh recommends people seek advice when dealing with personal insurance.

“Your health condition was accepted by the insurance company at the time of application,” he said.

“You are covered under the terms of the agreement as long as you pay your premiums, regardless of the changes to your health.

“Any alterations of your personal insurance may result in reassessment of your current health conditions, which may attract a loading of premiums, exclusion of benefits or outright decline of cover.”

General insurance is different and a cheaper policy is often a result of having less coverage or stricter definition for payout.

But Mr Goh said there were things to consider to ensure you pay for what you need.

“For example, your home insurance cover should only be the amount needed to rebuild your house, not the full purchase price,” he said.

“The excess that you pay upon making a claim is a form of self-insurance.

“Your premiums will become cheaper as you increase the excess on your policy. You can increase the excess if you have available funds saved up and have a low claims history.”

FOOD, GOING OUT AND SUBSCRIPTIONS

When it comes to everyday costs like food and going out, Mr Goh recommends people involve the whole family.

“Rather than trying to formulate a battle plan on your own, you may be surprised by the variety of suggestions that would arise from people with different perspectives,” he said.

Mr Goh said people should make small changes over long periods of time, rather than drastic abstinence.

“It is easier to make small manageable changes than large ones that increase your stress levels. The latter often results in increased spending through retail therapy,” he said.

“Get creative and be flexible with your meals. Substitute ingredients that have gone up in price with more affordable alternatives when cooking.

“Or try preserving vegetables and making jams with produce that are in season or abundance.

“These are some of the things that our grandparents did after the war and they managed to thrive despite experiencing similar if not worse inflationary conditions.”

Mr Goh also recommends people look into their monthly subscriptions.

“They are often payments that get overlooked. If you are not fully utilizing the service or subscription, cancel them,” he said.

He also suggests people find ways to reuse and recycle where possible.

“You can breathe new life into old furniture with a new coat of paint or a box of screws,” he said.

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Reserve Bank wary of cautious consumers amid falling house prices, as global economy sours

The Reserve Bank has slashed its forecasts for economic growth as rate rises, house price falls and a souring global economy weigh on Australia’s outlook.

The bank has dramatically scaled back its forecasts for household consumption, which accounts for about 60 per cent of Australia’s economy.

“Higher consumer prices, rising interest rates and declining housing prices are expected to weigh on growth in private spending, at the same time as growth in public demand slows,” the bank noted in its latest Statement on Monetary Policy.

The bank slashed its consumption forecast for the middle of next year from 4.4 per cent to 2.8 per cent, echoing the results of surveys that show consumer sentiment approaching recessionary levels.

Higher interest rates are expected to be a major factor behind tightened belts, with the RBA basing its forecasts on an assumption that its cash rate would hit 3 per cent by the end of the year – up from 1.85 per cent currently – before falling back a little by the end of 2024.

It is important to note that this is not an RBA forecast for the cash rate, but an assumption based on market pricing and economist forecasts.

The outlook for Australia’s gross domestic product (GDP) has been cut by a full percentage point from around 4.2 per cent for December 2022 to 3.2 per cent.

Those cuts continue for the rest of the forecasting period, with the economy expected to grow just 1.75 per cent for the next two years.

Falling house prices, combined with the previous construction boom inspired by ultra-low interest rates and the previous government’s HomeBuilder grant, will result in dwelling investment falling sharply (-4.8 per cent) over 2024.

State and federal governments are also not expected to provide any assistance, with expectations that public spending will shrink next year.

Real wages to keep shrinking

Despite the slowdown in GDP growth, the RBA expects the jobs market to remain strong.

It is now predicting that unemployment will bottom out at about 3.25 per cent later this year before gradually creeping back up to 4 per cent by the end of 2024, as economic growth slows and migration flows start to ease some labor shortages.

Despite this leading to a modest pick-up in wage rises to about 3.5 per cent next year, the Reserve Bank still expects real wages to fall for at least the next year – that is, prices will keep rising faster than pay packets.

After peaking at 7.75 per cent by the end of this year, inflation is still expected to be about 6.2 per cent by the middle of next year, and 4.3 per cent at the end of 2023.

A key reason for this will be further pain for electricity and gas users.

“Contacts within the bank’s liaison program generally expect further significant increases in retail electricity prices in 2023,” the RBA observed.

“This is largely because the recently announced regulated price increases for 2022 were decided before the latest run-up in wholesale prices and because wholesale prices are expected to remain elevated.”

Consumers can also expect to see more manufacturers and retailers passing the increased cost of their inputs on in retail prices.

“A significant share of firms in the bank’s liaison program have increased prices or expect to do so over the coming months as a result of earlier increases in input costs,” the report noted.

“Some upstream cost pressures are showing signs of easing but it will take some time before this affects prices paid by consumers.”

Risks ‘skewed to the downside’

However, even those downgraded forecasts remain vulnerable to a weaker global economy.

The IMF recently slashed its global economic forecasts, while the Bank of England overnight warned of a long recession in the UK even as it raised interest rates there by half a percentage point.

“The risks to the global outlook are skewed to the downside,” the RBA warned.

“The synchronized nature of the tightening in monetary policy globally could prove quite contractionary, and is occurring at a time when fiscal policy is offering less support.”

Closer to home, the Reserve Bank has an eye on Australia’s biggest trading partner, where economic growth has virtually ground to a halt in recent months.

“Restrictions to control the spread of COVID-19 in China led to an unexpectedly large contraction there in the June quarter; further outbreaks could both weigh on growth in China and disrupt global supply chains,” the bank cautioned.

“The Chinese economy is also contending with weak property market conditions and increasing levels of distress among developers.”

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RBA interest rates: Westpac decreases fixed rates as three big banks pass on full 0.50 percentage point rate hike

Westpac Bank has made a surprising move, choosing to spare some customers from escalating price hike pain.

The big bank has announced it will be decreasing its four-year owner occupied fixed interest rate by one per cent, down to 4.99.

Westpac is the third of the big banks to announce its rate changes following the Reserve Bank of Australia’s decision to increase the official cash rate by 0.50% per annum (pa) on Tuesday.

The big bank has unsurprisingly followed its rivals the Commonwealth Bank and ANZ in increasing its variable home loan interest rates.

The interest rate changes will come into effect for new and existing home loan variable rate products on Thursday, August 18.

Earlier today, ANZ joined CBA in announcing it will be passing on the hike to variable rate mortgages and one savings account by the full 0.50 percentage points.

The major bank said its up-scaled up mortgage rates will come into effect for both new and existing customers from Friday, August 12.

The lowest variable rate will now be increased to 3.69 per cent – ​​just under that of CBA, which pumped up its lowest rate to 3.79 per cent.

Both rates are at three-year highs.

The ANZ decision also included increasing the rate on its new ANZ Plus Save account by 0.50 percentage points to 2.50 per cent for balances up to $250,000, which will come into place on Monday.

The move came just hours after Australia’s biggest bank, the Commonwealth Bank, announced it will pass on the full 0.50 percentage point hike to its variable home loan customers and some savings customers.

CBA will bring its occupier principal and interest standard variable home loans rate to 5.8 per cent.

Uncharacteristically, Australia’s other big banks have been slow off the blocks following the RBA’s decision on Tuesday, with CBA’s competitors Westpac, NAB and ANZ yet to make their announcements.

Mortgage rates for new and existing customers at CBA will rise by 0.50 percentage points on August 12, with investor rates rising to 6.38 per cent.

Research director at RateCity.com.au Sally Tindall said while the CBA’s decision comes as no surprise, for customers who are already feeling the heat, this fourth hike is a “difficult pill to swallow”.

“From next week, CBA’s basic variable rate will hit a three-year high of 3.79 per cent – ​​a huge increase from three months ago when it was just 2.19 per cent,” she said.

For an owner-occupier with $500,000 debt and 25 years remaining, the 0.5 percentage point hike means they will see their monthly repayments rise by $140.

To ease the strain, Commonwealth Bank is cutting its lowest four-year fixed rate to 4.99 per cent – ​​a drop of 1.60 percentage points.

This special rate, which comes into play on Friday, is strictly for owner-occupiers paying principal and interest on a package rate ($395 annual fee) for a limited time.

While Ms Tindall said the “whopping cut” will make it the lowest in its category, she warned it may not necessarily be a good idea.

“People should think carefully about whether they want to lock up their mortgage for the next four years because there can be significant consequences if they decide to break their loan,” she said.

For those with a NetBank Saver account, who will see the full rate hike, the research director said an ongoing rate of just 0.85 still won’t cut it.

“In this market, where we could see ongoing rates over 3 per cent, these savers are still getting paid peanuts,” she said.

But Ms Tindall said there are signs things could be turning around.

“On Tuesday, Macquarie announced it was making significant cuts to its fixed rates and now CBA is following suit,” she said.

“We expect this will trigger further fixed rate cuts from other lenders in response to both evolving market expectations and competition among the banks.”

Read related topics:westpac

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Commonwealth Bank is first major bank to lift interest rates, two days after RBA rates decision

After two days of silence, Commonwealth Bank has finally confirmed it will lift interest rates on its variable mortgages by 0.5 percentage points.

This makes CBA the first of the “big four” banks to pass on the Reserve Bank’s latest rate hike.

The RBA lifted its cash rate target by 0.5 percentage points on Tuesday, taking the new rate to a six-year high of 1.85 per cent.

It was no surprise that the commercial banks would pass on the RBA’s rate increase to their borrowers.

However, the surprising aspect is how uncharacteristically slow the banks have been in making such announcements in the past couple of days.

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Reserve Bank hikes interest rates for fourth consecutive month(Rhiana Witson)

CBA’s main rivals — Westpac, NAB and ANZ — still haven’t provided any update on their new borrowing rates.

Australia’s fifth-largest lender, Macquarie Bank, was the first bank to lift its rates — within hours of the RBA’s decision on Tuesday.

This was followed on Wednesday by ubank — an NAB subsidiary — announcing it would lift its savings rates by 0.5 percentage points in September.

Delay in being the first mover

“This kind of waiting game is unusual, but not unprecedented,” said Sally Tindall, the research director of RateCity.

“Back in 2010, three of the big four banks took between eight and 10 days to make announcements following the 0.25 percentage point RBA hike on 2 November.”

“The delay could be a worrying sign for savers. It’s possible the banks are still mulling over whether they will pass on the full hike to all their savings customers.”

“However, the big four banks could just be playing a game of chicken to see which one of them moves first.”

CBA increased its the standard variable rates for its borrowers by 0.5 percentage points.

The bank also said it would increase the rate on “select savings products”, meaning it has not passed on the RBA’s full rate hike to all savers.

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Interest rates: Peter White urges borrowers to beware of the hidden dangers associated with refinancing following RBA rate rise

A leading loans expert is urging mortgage holders to be wary of the hidden dangers associated with refinancing as the big four banks look to entice more customers with “cheap deals” following this month’s rate rise.

Peter White AM, the managing director of the Financial Brokers Association of Australia (FBAA), is asking Australians who are considering whether they should switch up their home loan to proceed with caution, warning that “cheaper isn’t always better”.

The director’s message comes after the Reserve Bank of Australia increased the cash rate by 50 basis points for the fourth time in as many months on Tuesday.

With the base rate now standing at 1.85 per cent, Mr White is asking borrowers to be on alert as major banks look to lure vulnerable customers who are struggling with their repayments to sign up to its services.

“Some banks at the moment are offering cheap variable rates to new borrowers only. This is a trap,” Mr White told news.com.au.

“For the lender it’s about using a marketing budget to generate more customers, knowing that most customers will stay as it costs to change again.”

It’s all part of a “vicious cycle” lenders use to draw customers into borrowing from them, Mr White explained, where new customers are blindsided as the rate on offer doesn’t always mean the customer will be better off in the long term.

“There is a hidden danger at times like this that is rarely spoken about,” Mr White said.

“Banks will be looking to attract those considering refinancing as new customers, and will offer cheaper variable interest rates that are significantly below their fixed rates, which are rapidly climbing. This is a case of ‘buyer beware’.”

Cashbacks and exclusive rates at discount prices for new customers are some of the lures banks are using to attract new borrowers.

Both come at the cost of disadvantaging the lender’s current customer base as their higher interest rates make up for the lower rate offered to new customers.

“Borrowers should be aware that next time around they will be the existing customer facing higher rates and will be disadvantaged during rate increases,” Mr White said.

“It’s an old game to lure new customers with a perceived advantage only to be taken advantage of with the next move.”

Additionally, some banks use a tactic where they attempt to give you a better rate after you’ve agreed to another offer.

“If they were serious about looking after you they would have offered this when you first approached them, so ignore this offer and don’t be distracted as this will cause you even more headaches, and makes the process even more complex,” he said .

While Mr White advises borrowers to refinance with caution, saving on your home loan isn’t entirely off the cards.

Rather than focusing on the big four banks, Mr White recommends looking at what second tier banks such as Suncorp, and non-banks such as Bluestone, have on offer.

“Going with the major banks is often the most expensive way forward and may not be in your best interests due to constraints and other factors specific to you,” Mr White said.

“Remember the big banks can only sell you their products, and their aim is to look after themselves and their shareholders, not to act in your best interests.”

It’s also advised that borrowers go through a mortgage broker, rather than directly through a bank. Brokers are free to use as they receive commission from lenders once they sign a customer up to a service.

They also have access to a range of offers that aren’t always available to borrowers who go through the back directly and can find a rate and repayment schedule that suits a borrower’s needs.

“A finance broker is obliged to act in your best interests and sometimes this means explaining that the best option may be not to refinance,” Mr White said. “(They’re also) charged by law to act in your best interests, whereas banks are not.”

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