A major bank has become the first of the big four to announce it will be increasing its interest rates, despite the Reserve Bank of Australia (RBA) keeping the rate on hold.
Westpac has followed in smaller lenders' footsteps by today announcing it will increase its variable interest rates for owner occupied and residential investment property loans.
The major said this reflects a sustained increase in wholesale funding costs. All variable mortgage rates will increase by 14 basis points and take effect from 19 September 2018 and will apply to new and existing customers.
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.
George Frazis, Chief Executive, Consumer Bank, said, “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.
“Wholesale funding is an important component in our mortgage pricing. In particular the bank bill swap rate, which is a key wholesale funding rate for mortgages, increased by about 25 basis points between February and March this year and has remained elevated.
“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.
“We now believe wholesale funding costs will remain high for the foreseeable future,” Frazis said.
“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,” Frazis said.
The 14 basis point increase will add $35 to the interest cost per month of an average home loan of $300,000. Currently 68% of Westpac Group home loan customers are ahead on their repayments.
Frazis noted that despite the increase announced today, the interest rate on a principal and interest, owner occupied loan, remains 10 basis points lower than it was three years ago.
“Importantly, customers wanting to switch from a variable interest only loan to the lower rate principal and interest loan can do so without any penalty or fee. For homeowners looking for certainty about their repayments, they can choose to fix all or part of their home loan through a fixed rate loan," Frazis said.