The outlook for house prices in Victoria and New South Wales  has been ‘scaled back sharply’.
The outlook for house prices in Victoria and New South Wales has been ‘scaled back sharply’.

Mortgage belt cops new rates blow

AMP has hit its home loan customers with out-of-cycle interest rate hikes just as new research suggests confidence in the Australian property market is waning.

The financial services heavyweight has revealed it will lift variable mortgage rates across the board in a move likely to heighten expectations of rate hikes among the major banks.

AMP Bank joins a succession of other lenders - including Macquarie, Bank of Queensland and ING - who lifted home loan rates in recent weeks, citing increasing funding costs.

Industry experts have said rising funding costs, particularly in offshore lending markets, is taking a toll on the mortgage books at Australian banks.

The major lenders will likely have to hike their rates soon too, leading analysts say, even though the Reserve Bank will almost certainly keep the cash rate on hold.

AMP's owner-occupier home loan customers who are repaying their principal will be hit with rate rises of 0.08 percentage points, while those with interest-only mortgages will pay an extra 0.17 percentage points.

AMP Bank executive Sally Bruce.
AMP Bank executive Sally Bruce.

For investors, rates on both principal-and-interest and interest-only loans will jump 0.17 percentage points. The changes take effect on Friday for new customers and on Monday for existing borrowers.

Announcing the hikes, AMP Bank executive Sally Bruce said they were the first since June last year and were driven by rising funding costs.

"We have held off passing this cost on to customers for as long as we can," Ms Bruce said.

Analysts at investment bank Citi last month said the major banks were likely to increase rates by, on average, 0.08 percentage points by September. That would add about $230 a year to repayments on a $400,000 mortgage.

AMP's announcement on Thursday came as National Australia Bank analysts cut their forecast for house prices in the coming year.

In a report, NAB said it now expected a "slightly sharper" decline in house prices this year than it was previously forecasting, noting prices had already fallen further than expected.

Having previously forecast a small rise in prices next year, it is now expecting a "small fall", driven by continued weakness in Sydney and Melbourne along with a "sharper decline" in Brisbane unit prices. "We also expect house prices to flatten in aggregate in 2020 - implying a peak-to-trough fall of 6.5 per cent and 2.5 per cent in Sydney and Melbourne respectively," the report said.

NAB chief economist Alan Oster.
NAB chief economist Alan Oster.

NAB chief economist Alan Oster cautioned factors including "any further tightening in lending standards" could further affect the outlook.

According to the bank's latest quarterly poll of property professionals, sentiment is now at its lowest level in two years, with the outlook for prices in Victoria and New South Wales "scaled back sharply".

"Confidence - based on future expectations for house prices and rents - also fell to a new survey low," NAB said.

Separately, analysts at investment bank Morgan Stanley said their modelling suggested prices would keep falling into the new year.

"While consensus is now bearish on dwelling prices, this model suggests a price floor is still over the horizon," Morgan Stanley strategist Daniel Blake said. "The debate now pivots on the extent of any decline.''

"At this stage, we remain of the view that a price adjustment will be closer to 10 per cent, while noting that deeper falls would bring a monetary or prudential policy adjustment into the debate."