Rate Hike Hits New Borrowers as Premium Funding Costs Soar
The recent rate hike by the Reserve Bank of Australia (RBA) is expected to impact new borrowers in the premium funding market. According to Arteva Funding CEO Daniel Gronert, the increase in the RBA's cash rate target will lead to higher costs for funders, which will be passed on to new borrowers. However, existing loan agreements will not be affected by the rate hike.
Gronert stated that businesses with insurance premium loans already in place will not see an increase in their costs due to the RBA's decision. However, new lending will be impacted as the funder's own cost of capital increases.
Arteva Funding has seen a steady increase in premium funding take-up across Australia since the start of the year, despite falling premiums and rising interest rates. Gronert noted that clients are experiencing challenging conditions, but they have not yet seen any significant deterioration in loan arrears or missed payments.
The impact of the recent rate increase may take some weeks to be felt, with further increases forecasted in the coming months. Economists at Westpac and EY expect at least one more interest rate hike before the end of the year.