Putting an end to speculation, Westpac has increased its variable mortgage interest rates for owner-occupied and residential investment property loans in order to counter rising wholesale funding costs.
Spikes in funding costs had led analysts to predict mortgage rate rises earlier this year. But due to negative sentiment, Australia’s major banks had avoided passing on the cost.
According to George Frazis, Chief Executive, Consumer Bank, “We initially hoped that this increase would be temporary, and therefore we have incurred these costs over the last six months. The rate changes announced today will not recover these costs.”
According to Westpac, all variable mortgage rates are to increase by 14 basis points and this will take effect from the 19th of September 2018. The changes apply to all new and existing customers and will probably add around $35 to a $300,000 mortgage.
The rate changes include:
Standard variable home loan rate for owner occupiers will increase to 5.38% per annum for customers with principal and interest repayments;
Standard variable home loan rate for owner occupiers will increase to 5.97% per annum for customers with interest only repayments;
Standard variable residential investment property loan rate will increase to 5.93% per annum for customers with principal and interest repayments; and
Standard variable residential investment property loan rate will increase to 6.44% per annum for customers with interest only repayments.
While more than a dozen smaller banks have already lifted their annual home loan rates, Westpac is the first of the big four banks to raise interest rates for all variable home loans this year.
“This is a tough decision, but we have a responsibility to price our mortgage products in a way that reflects the reality of our funding costs.”
According to Mr Frazis, these wholesale funding costs are expected to remain high for the foreseeable future.
“Given the step change in our funding costs, we have made what we believe is the appropriate decision: to balance the interests of all of our stakeholders by remaining both unquestionably strong and competitive in the market,” Mr Frazis said.
Westpac owned Bank of Melbourne, BankSA, St George Bank and RAMS will also match the hike, which is expected to increase the monthly cost of a $1 million loan for an owner-occupier, principal and interest borrower by about $82 a month, which adds up to just over $1000 per year.
The question on everyone’s lips is can we expect rate rises from the other big banks? The answer is yes, and it’s expected that ANZ, CBA and NAB will follow-suit sooner rather than later.