Rate rise to come: Expect to pay more after this week
COMMBANK and ANZ customers should brace for interest rate hikes of more than 20 basis points for investor loans and up to 10 basis points for owner-occupiers.
NAB and Westpac began raising interest rates out-of-cycle with the Reserve Bank last week, and experts say the remaining two of the big four banks are likely to follow suit shortly.
Despite the official cash rate remaining on hold at its historic low of 1.5 per cent, the banks have begun hiking rates in a bid to keep a lid on growth in loans to property investors - and to protect their profit margins.
From this Friday, NAB and Westpac will move to the same standard variable rate for owner-occupiers of 5.32 per cent per annum. CommBank's current rate is 5.22 per cent, and ANZ's is 5.25 per cent, giving them 10 and seven basis points of headroom to move, respectively.
Similarly, NAB and Westpac's standard variable rate for investors will this week move to 5.80 per cent and 5.79 per cent respectively. CommBank's current rate is 5.56 per cent, and ANZ's is 5.6 per cent, giving them up to 24 and 20 basis points of room.
"The trend is the banks cover for each other, with maybe a bit more pain being taken by the first-mover," said Steve Mickenbecker, finance expert with comparison website Canstar.com.au. "I expect any day almost an announcement to be made, they're falling more or less into line."
Graham Cooke, insights manager at comparison website Finder.com.au, said it was not surprising banks were taking matters into their own hands to raise rates out-of-cycle.
"It's been relatively quiet on the cash rate front in recent months, and with many believing a rate rise won't occur until next year, it was only a matter of time," he said.
"Whether it's to increase flexibility or boost profit margins, banks are under fire to manage stakeholder expectations while also dealing with the risk of an overheated property market."
More stringent regulations imposed by the Australian Prudential Regulation Authority mean banks must keep growth in investor lending under 10 per cent, which they have partly blamed for the rate increases.
A report from JP Morgan last week said a "cynic will say" that the increases were not to price for risk, but rather to offset higher funding costs and preserve margins, so the banks can continue to compete via discounting on new loans in the owner-occupied space "where there is greater political focus, and fewer regulatory concerns".
Mr Mickenbecker agreed that the APRA regulations were "not the whole story", saying if banks really wanted to cap growth in new loans they would do it by tightening up credit criteria.
"If you do it through pricing, the standard variable rate hits the whole loan book, including existing loans, so you can't really argue that it's just about the 10 per cent [cap], it's also about improving margins," he said.
Both experts said it now would be a good time to for borrowers to consider fixing at least a portion of their home loan, despite NAB and ANZ both increasing their fixed interest rates at the start of the year.
"I think people should really be seriously thinking about it right now, even though they've missed the absolute bottom [for fixed rates]," said Mr Mickenbecker. "Rates are going to go up. There will have to be a real turnaround in the economy for them to go down or stay the way they are."
Mr Cooke said both owner-occupiers and investors should prepare for higher loan costs. "It's sensible to factor in 2-3 per cent on top of your current mortgage repayments so you can cope with unexpected rate rises," he said.
Price signalling laws mean the banks are not able to telegraph changes ahead of time.
A spokesman for ANZ said: "We have not announced any changes to those rates since NAB and Westpac made changes last week." A spokesman for CommBank said: "We have nothing to add on the announcements by Westpac and NAB."
It comes as minutes from the latest RBA board meeting suggest the central bank will leave interest rates unchanged this year amid concerns over the resurgent property market.
CURRENT STANDARD VARIABLE RATES
• CommBank: 5.22pc
• ANZ: 5.25pc
• NAB: 5.32pc (up from 5.25pc)
• Westpac: 5.32pc (up from 5.29pc)
• CommBank: 5.56 per cent
• ANZ: 5.60 per cent
• NAB: 5.80 per cent (up from 5.55pc)
• Westpac: 5.79 per cent (up from 5.56pc)