Australian banks to raise mortgage rates on average 2.5%
The Federal Government will increase the cost of mortgage loans by up to 2.4 per cent, but banks are expected to remain on the hook for up to three years more, with the average interest rate rising from 2.7 per cent to 2,632 per cent.
The move is expected to save banks an estimated $2.5 billion a year, according to the Reserve Bank of Australia.
In the short term, it will save banks $2 billion over the next five years, with higher rates in the long term, Mr Turnbull said.
“While we expect this increase to have a significant impact on household finances, in the medium term, the increased cost of borrowing for some households may reduce their need to borrow,” he said.
“So the average cost of a fixed rate mortgage will be about 2,616 per cent over the medium to long term.”
The increase to mortgage rates will come into effect from April 1, 2018.
Mr Turnbull said the Government had already put forward the “principle” for raising rates, and the Federal Government would have to consider a range of factors, including a reduction in the number of people entering the workforce.
“The Government has taken the long view and decided that a reasonable amount of that increase will come from the impact of the low oil price and on the economy,” Mr Turnbull told the ABC.
It is not the first time Mr Turnbull has sought to increase the rate of interest on loans.
In December, the Government unveiled a plan to raise the cost-of-living allowance for people over 65 by $4,000 a year.
The Government has not revealed how much this increase will cost.
The Opposition has called for the Government to lower the cost to the taxpayer of interest-free loans by $100 a year and for the rate to be increased from 2,615 per cent on the first $10,000 of loans to 2 of 3.
While Mr Turnbull and his colleagues have been clear that the Government would not hike interest rates, the Opposition has been critical of the Government’s proposed changes.
Shadow Treasurer Chris Bowen said the Opposition would fight to keep rates as they are, and not have to pay for a change in the Government policy.
“This is the Prime Minister’s last chance to save a system that has failed us,” he told the Nine Network.
Opposition leader Bill Shorten said the change was a waste of money.
“It’s a massive tax cut for the richest Australians, which will lead to more people borrowing,” he warned.
Treasurer Scott Morrison said he wanted to make sure banks had a safe and sound lending environment, and to make the Government “a better financial manager”.
“We’ve had a tough time here over the last few years with our balance sheet, but we’ve also got some really strong credit ratings in the banking sector,” he explained.
Aboriginal Affairs Minister Simon Birmingham said the plan was the “right thing to do”.
“This Government has listened to the people and listened to business and the communities, and we are committed to making sure that banks can continue to offer a level playing field to the Australian taxpayer,” he added.
Topics:government-and-politics,financial-and/orchards,housing,interest-rate-policy,finance,financial_services,government-orchestra,australia,sydney-2000,aucks-north-2040,brisbane-4000,vic Source: The Australian Financial Press