Daily Commentary BY THE CURVE TEAM –

Brexit in Chaos as Mortgage Rates Rise

10th of July, 2018

Brexit woes lurched from bad to worse overnight with another high profile resignation from the PM’s inner sanctum. In Australia we saw another large bank lift their mortgage rate as increased funding costs start to distort the outlook for interest rates.

Another high profile resignation in the UK has thrown the Brexit process into chaos. Foreign Secretary Boris Johnson’s announced his resignation last night, following Brexit secretary David Davis out the door. UK Prime Minister Theresa May has now lost 2 of her 4 key ministers.

The move sets up a battle between the hard line Brexiteers in her own party with those who agreed to the softer Brexit approach. It also has seen her leadership questioned and could lead to a leadership challenge or even a general election. Importantly, it adds to the uncertainty on a global level, and there is an increased chance of a hard Brexit now.

The news didn’t seem to impact the markets ebullient move, with the exception of the GBP, as it carried over from Friday’s trade.

Locally the big news was the increase in mortgage rates by Macquarie Bank, who lifted rates by 10bp. While the small increases from second tier banks, regionals and mutuals who have announced increases so far doesn’t come close to offsetting increased funding costs, it does pave the way for the majors to go sooner rather than later.

Regardless of when the major eventually go, the increased funding costs and the passing on of those costs to borrowers is impacting the outlook for monetary policy. I take a deeper look into what the impact of increased funding costs are on the outlook for the RBA in today’s Curve Monthly Insights.

David Flanagan

Director - Interest Rate Markets