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Retailers have warned that mortgage interest rate rises by the big banks will hurt spending at the shops in the run-up to Christmas.
All the big four banks have raised rates on their home loans outside of any move by the Reserve Bank (RBA).
The banks have blamed the rate rises on new banking regulations requiring them to hold more capital as a buffer against future financial crises.
Russell Zimmerman, the executive director of the Australian Retailers Association which represents retailers around the country, called on the RBA to cut official interest rates when it meets on Melbourne Cup day to offset the impact of bank rate rises on retail spending.
“Our concern is if you have an interest rate increase as we’ve had, it will take money out of the economy and we will see a downturn spend,” he said.
“By the time you take out a rate increase which will add on to the average mortgage around $65 to $70 a month, it’s quite a sizeable amount of money out of the retail economy.”
JP Morgan interest rate strategist Sally Auld does not think the rate rises will have much impact on households.
“We’re looking at a period where since 2011, the RBA cash rate has come down 275 basis points and a large majority of that has been passed on in the form of lower mortgage rates by the banks,” Ms Auld said.
“Against that backdrop, we’re looking here at mortgage rate increases of 15, 17, 20 basis points, depending on which mortgage lender it is, so that’s quite small.”
‘Not a huge deal for the household sector’
Ms Auld also said data from the RBA showed that most mortgage borrowers were ahead on their home loan repayments and so had a buffer against higher interest rates.
“Our sense is that this is not a huge deal for the household sector, but it’s early days and we’ve yet to actually see that rate rise be implemented,” Ms Auld said.
Last week’s Roy Morgan consumer confidence survey found that confidence fell 2 per cent after Westpac became the first bank to raise its mortgage rates earlier this month.
It increased home loan interest rates by 20 basis points to 5.68 per cent for owner occupiers starting from November 20.
ANZ, National Australia, the Commonwealth Bank and St George have followed suit.
ANZ said its 18-basis-point rise in mortgage rates would add an extra $36 a month to the average home loan of $242,000.
The Westpac-owned St George announced on Friday that it would increase its standard variable rate home loans by 15 basis points to 5.69 per cent.
New regulations by the Australian Prudential Regulation Authority (APRA) requires major banks to hold more money on their mortgage books to protect against a housing market collapse.
Speculation the RBA will cut official interest rates
Higher mortgage rates have raised speculation that the RBA will cut official interest rates to compensate for the big banks’ moves at its next meeting on Melbourne Cup day.
Ms Auld does not think that will happen with JP Morgan predicting the official cash rate will stay hold for the rest of 2015 and 2016.
Ms Auld said that bank mortgage rates are predicted to keep rising because of expected further increases in capital reserve requirements for banks internationally.
Paul Brennan, chief economist at investment firm Citi, is one of the few economists predicting a rate cut when the RBA meets on Melbourne Cup day.
“If the Reserve Bank reacts by cutting interest rates next week, then potentially we could have a really good run up to Christmas for the retailers,” Mr Brennan said.
ANZ predicts that the RBA will cut the cash rate by half a percentage point next year to 1.5 per cent.
Official rates remain at a record low of 2 per cent.