Will US rate rises affect Australia?

Last night’s meeting of the US Federal Reserve increased America’s benchmark interest rate from 0.75% to 1%. Leading up to this widely-forecast increase, finance industry experts predicted that rising US interest rates may influence Australia and other countries where lenders could struggle with increased overseas funding costs, and raise their own interest rates to compensate.

While the most recent meeting of the Reserve Bank of Australia (RBA) left Australia’s cash rateon hold at 1.5% for the seventh month in a row, without a crystal ball it’s impossible to accurately forecast whether the RBA will increase the cash rate in upcoming months or later in the year. However, it is possible that Australian banks and lenders may soon start raising their rates independently of the RBA – and some have already begun.

A recent update to brokers from Bankwest announced that the lender will be increasing fixed and variable interest rates on a variety of investment loans, as well as variable interest rates for some owner occupier home loans.

BankWest’s parent, Commonwealth Bank, also recently announced that it will be reducing the maximum LVR on several investment loan products. This includes reducing the LVR on its investment home loans from 95% to 90%, effectively doubling the size of the deposit required from new borrowers. 

This follows last month’s changes to CBA and BankWest’s investment lending policies, understood to be intended to limit the growth of investment lending to remain compliant with the Australia Prudential Regulation Authority (APRA).

If you’re in the market for a new home loan, or are considering refinancing your existing mortgage, and are concerned about the risk of rising interest rates, there are options available to consider. Fixing the interest rate on your home loan may be able to help insulate you from the worst effects of rising interest rates, and split rate loans combine stability with flexibility. You should always carefully consider which options will be the most appropriate for your unique financial situation – if you’re not sure, consult a financial adviser.

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