“While we are now experiencing a return to more normal interest rates than has been seen in recent years; the rate increase will impact the budget of many households,” Hyman said.
The signs that new lending is falling come as financial markets expect the Reserve Bank of Australia to hike the exchange rate from 1.35% to 1.85% on Tuesday in a bid to bring down inflation.
For the big four banks, rising interest rates tend to widen profit margins, but analysts also expect bad debt to rise, alongside slower growth in the $2 trillion mortgage market. .
Macquarie analyst Victor German expects mortgage growth to fall sharply to 2.2% a year by mid-2023, from nearly 8% annual growth in June, citing the experience of New Zealand, where lending fell in response to higher rates.
“If we’re heading into an environment where credit growth is going to be slow for a long period of time, that has a substantial impact on the earnings outlook and the valuation of banks,” said German, who has more bearish estimates on the market. credit. growth than many other analysts.
Morningstar analyst Nathan Zaia predicts home loan growth will slow to 3% to 4% in 2023, due to lower house prices and lower borrowing capacity of customers.
Zaia said net interest margins – the difference between funding costs and what banks charge for loans – were more “material” to big banks than credit growth.
Macquarie Group Chief Executive Shemara Wikramanayake acknowledged the likely slowdown in loan growth ahead of the bank’s annual meeting on Thursday, saying: “In our banking and financial services business we are seeing rising interest rates. interest, maybe a bit volume growth in the market. , although we continue to have good volume growth.
Anthony Waldron, managing director of REA Group-owned Mortgage Choice, said he believed the refinance market would remain strong as many borrowers would face higher rates when the lower fixed rate loans expire . “People have had a rate that in some cases started with a 1, and all of a sudden they’re going to be in the 3s,” Waldron said.