CANBERRA: Home owners’ mortgage costs are set to rise by hundreds of dollars a year, after the Commonwealth Bank became the latest bank to hike interest rates in an attempt to preserve shareholders’ high returns.
The country’s biggest bank on Thursday raised variable mortgage rates for owner-occupiers and housing investors by 0.15 percentage points, the first such rise for the bank in more than three years, following Westpac’s shock increase last week. For someone with a mortgage of $300,000, monthly repayments will rise by almost $27, while the monthly increase is nearly $45 for a $500,000 loan.
As more than a quarter of home loans are with the CBA, the increase is tipped to dent household confidence and potentially curb spending at a time when the economy is already soft because of weak business investment. The rate rise also sparked a fall of nearly half a cent in the Australian dollar, as traders bet it could raise pressure on the Reserve Bank to cut the official interest rates to a new record lows as soon as next month.
Analysts expect National Australia Bank and ANZ Bank to follow their larger rivals in increasing home loan interest rates, and neither lender ruled out such a move. With economic growth well below its long-term average, the rate hikes are predicted to weigh on household confidence, and further slow the property market.
Aussie Home Loans founder John Symond said that “without a doubt” the major banks would like to raise their interest rates by some degree, which would put pressure on the Reserve Bank to consider cutting the official rate.
“If it was just Westpac, not much impact. But when all of them come out psychologically it can be a signal to consumers that this means interest rates are going up,” said Mr Symond, speaking before the CBA’s move.
“It’s a negative signal whichever way you look at it from a consumer’s point of view and it’s just another bit of uncertainty about the Australian economy, which is another reason why people are showing more caution and the steam is coming out of hot pocket areas.”
CBA’s standard variable rate for owner-occupiers will rise to 5.6 per cent, and its standard rate for property investors will increase to 5.87 per cent.
Like Westpac, which raised mortgage rates by a larger 0.2 percentage points, the Commonwealth Bank blamed the increase on rules requiring banks to hold larger capital buffers, which absorb losses in financial shocks. The government this week endorsed the tougher capital rules, which should make banks more resilient.
Treasurer Scott Morrison said the hike was a commercial decision,and denied it was forced on the bank by the government or the banking regulator, the Australian Prudential Regulation Authority.
“It is up to the bank to explain this increase to their customers. Like any other business, they are under no obligation from APRA or the government to pass on any changes to their cost base to customers.
But Opposition Leader Bill Shorten said customers had a right to be angry because they were being ripped off by banks that had been given the “green light” to raise interest rates by Mr Morrison and Prime Minister Malcolm Turnbull.
“The banks see Scott Morrison and Malcolm Turnbull as a soft touch – and borrowers are paying the price,” Mr Shorten said. The rate hikes from CBA and Westpac put the spotlight on ANZ Bank and National Australia Bank, which will report their annual profits next week.
CBA, the most profitable bank in the country, is likely to make an extra $325 million in annual profits as a result of the rate hike, according to analyst estimates. An ANZ Bank spokesman said the bank would not comment on the future direction of interest rates, while NAB declined to comment. ANZ chief executive Mike Smith this week said the bank would weigh up its options.
“The fact is that the cost of further capital, the cost of increased regulation, has to be borne by somebody. This doesn’t come for free,” Mr Smith told Fairfax Media on Tuesday. NAB chief executive Andrew Thorburn also left the door open to a rate hike last week after Westpac’s increase.
