Major bank hikes mortgage rates

by Madelin Tomelty05 Dec 2016
The Commonwealth Bank of Australia is lifting rates on fixed term owner occupied and investment loans by up to 65 basis points, the Australian Financial Review has reported.

The rate hike comes following increases by Westpac, ING, National Australia Bank and numerous other smaller lenders, at a time of growing uncertainty in the lending market.

This was reflected last week when Australian Broker reported on the growing gap between the most expensive and the most affordable loan rates for residential property, which has now widened to nearly 240 basis points.

Lenders have been citing “increased costs of funding” as one of the main drivers of the increases and, something many are attributing to the “Trump effect”, with CBA following suit.

The changes affect customers taking out new fixed-rate loans on two, three and five year fixed rate products for owner occupier and investor home loans, and CBA is blaming a mix of international and domestic reasons that have occurred in recent months for the rises, such as rising costs on global capital markets for loan swaps, which influence long term home loan product pricing.

"In the past two months swap rates have risen significantly, which has increased the cost of providing some of our fixed rate home loan products,"  Dan Huggins, executive general manger of home buying said.

According to Canstar, in monthly repayment terms, CBA’s rate increase will mean a rise of more than $355 for a borrower with a 30-year fixed loan paying the new rate of 4.74%.

Increases range from 15 to 65 basis points, with the largest increases on its five-year fixed rates that come with other financial service products, such as credit cards and insurance. 

Two-year fixed rates will rise 0.15% to 3.99%, while standard five-year fixed rates will increase 0.6 % to 4.74%. Three-year fixed loans are up by 20 basis points to 4.09%.

The Reserve Bank of Australia’s recent figures show continued strong growth in investor loans, and CBA’s changes show that the major, like other banks, is also rushing to attract investors with better deals.

The bank has decreased its interest rates on four-year fixed rate products for both owner occupier and investor home loans by 20 basis points to 4.54% for the standard rate and 4.39% for the packaged loan. 

Suncorp Bank will also be announcing discounts of around 95 basis points on investment loans as they attempt to grow market share, according to the AFR, and the nation's two largest mutual banks, CUA and Newcastle Provident, are also cutting rates in a bid to attract more business, despite a retail footprint that is small compared to other banks.

Digital Finance Analytics principal Martin North stated the arrival of Donald Trump was the impetus for a “major reset in financial markets”, of which “the knock-on effect” in Australia is significant.

“In Australia, this will mean the end of cheapest ever money for mortgages as banks adjust their rates, and the end of the Reserve Bank of Australia's downward monetary cycle (a major shock apart)," he said.

"Households need to understand the world just changed, and mortgages will get more expensive as we travel through 2017 and beyond."