In a public blog post, the company’s research analyst, Cameron Kusher, said that investors and interest-only loans are no longer the sole focus of the rates squeeze.
“While there has been a lot of adjustments to mortgage rates over recent years, the big difference with the latest announcement is that the higher mortgage rates are going to affect owner occupiers,” he said.
“Many of the smaller regional banks have pushed mortgage rates for owner-occupiers higher over recent months citing higher short-term funding costs. Although until now the major banks had resisted making an adjustment to mortgage rates, it seems they too have had their hand forced by higher funding costs.”
According to Mr Kusher, bank funding costs have spiked sharply throughout 2018, having bottomed out toward the end of last year.
But the real kicker with these latest rate rises is that they come at a time when property prices are falling, not rising.
“From a housing market perspective, the timing of the announcement of higher interest rates is an interesting one. After many years of strong value growth, Sydney and Melbourne housing is now well embedded in a downturn. Tighter credit conditions, higher mortgage rates for investors and interest-only borrowers and reduced affordability have already led to the falls of -5.6 per cent from the peak in Sydney and -3.5 per cent from their peak in Melbourne,” he said.
“This has occurred so far without higher interest rates for owner-occupiers paying off principal and interest. However, that is about to change.”
Mr Kusher noted that higher rates for investors have already resulted in a dramatic drop in demand, and that is likely to now push into owner-occupier properties.
The result will likely be a longer downturn in property prices and with it, a reduction in household equity – a key asset used as security for business owners trying to obtain finance.
Indeed earlier this year, the OECD suggested that SMEs are overly reliant on banks for funding. However, it did note that this is slowly changing, as a plethora of alternative finance providers and fintechs open up new access routes to capital.