Non-major changes fixed and variable home loan rates

by AB14 Dec 2016
ME today announced variations to its fixed and variable home loan rates.
The Bank will decrease its 1-year fixed owner occupier and investor loans by 10bps to 3.89% p.a. and 3.99% p.a. respectively, while increasing its 2-year owner occupier loans by 10bps to 3.94% p.a. and its 3-year fixed owner occupier and investor loans by 15bps to 3.99% p.a. and 4.09% p.a. respectively. All changes are effective 15 December 2016.
ME is also increasing its variable home loan reference rate by 10bps effective 4 January 2017, affecting new and existing investor and owner occupier loans.
ME’s standard variable rate will be 5.03% p.a., which is 22bps lower than the average of the major banks and 42bps lower than the average of the regional banks*.
Home loan rates below 4% p.a. are still available from ME including 3.94% p.a. on ME’s flexible home loan with member package for owner occupiers borrowing between $400,000 and $700,000. 
ME CEO, Jamie McPhee, said the changes were due to increases in funding costs and the need to remain within APRA’s limit on investor lending growth.
“The rate banks pay to hedge the cost of three-year fixed mortgages has increased 40 basis points since August, while variable home loan funding costs have been increasing as banks work toward the regulatory need to hold longer-term stable sources of funding.
“ME is moving to a new regulatory regime on 1 January 2017 (the Liquidity Coverage Ratio), requiring it to compete for more deposit funding. 
McPhee also said Australia’s smaller banks were still subject to higher funding costs relative to the majors.
“The major banks get a credit rating upgrade due to their ‘too big to fail’ status in turn giving them access to cheaper funding, while mortgage risk-weights remain distorted with standardised banks having an average mortgage risk-weight of 39% while ‘advanced’ banks enjoy a mortgage risk-weight of 25%. 
“Despite the disadvantages, ME’s standard variable home loan for owner occupier borrowers remains lower than the major banks as it has since we became a bank in 2001. In addition ME continues to offer some of the highest deposit rates in the market including eight of the top 12 term deposit rates between one and 12 months.
“We believe these rate changes strike a fair balance between rising costs and the needs of depositors, borrowers and our industry super fund shareholders and their members.”