National Australia Bank and Westpac have raised interest rates on investor-friendly mortgages as Australia’s biggest lenders seek to offset some of the pressure on their margins.
NAB on Monday said it will increase variable rates on investor home loans by 0.15 percentage points from next week, while Westpac has lifted its variable rates for all interest-only mortgages by eight basis points.
Westpac’s move comes after it has already imposed out-of-cycle rate rises of as much as 0.60 percentage points on some of its fixed rate home loans.
With Commonwealth Bank having increased interest rates on fixed-rate owner-occupier and investor loans last week, ANZ is the only one of the big four banks yet to hike its rates.
ANZ chief executive Shayne Elliott last week, however, said it was “reasonable” to expect out-of-cycle increases.
The major banks have all cited increased funding costs as a major driver for lifting home loan rates, despite the Reserve Bank’s cash rate sitting at an all-time low.
“As was evident during the recent bank reporting season, net interest margins – the difference between what we pay to borrow funds to lend to our customers and what our customers pay – are down, particularly in home lending, and they remain under pressure,” NAB chief operating officer Antony Cahill said.
“A low-rate environment poses considerable challenges to all lenders, and we must respond to what is happening in the economy and the market,” Mr Cahill said.
Raising rates for investor loans – and for interest-only loans favoured by investors – also help the banks comply with APRA’s rule that they can only grow investor lending by 10 per cent per annum.
“The pricing of interest-only home loans must reflect prudent lending practices in a dynamic and complex home loan market,” Westpac consumer bank chief executive George Frazis said.
Westpac, which had already lifted its two-, three- and five-year fixed rate loans by between 0.24 and 0.54 percentage points, will from December 16 have an interest-only owner-occupier variable rate of 5.41 per cent.
The variable rate for interest-only investor loans will be 5.68 per cent.
NAB will keep its standard variable rate for residential mortgages at 5.25 per cent, and lift its rate for investor loans by 0.15 per cent to 5.55 per cent.
Under the new CBA’s arrangements to be introduced Monday, any request to switch to interest only within 90 days of taking the loan will be scrutinised by a specialist Retail Credit Decisioning team.
“This change will help ensure that customers can service the higher principal and interest repayments that will apply after the interest-only period,” Fairfax Media quoted a CBA spokesman said.