The Commonwealth Bank of Australia (CBA) and ANZ have decided to follow in the steps of fellow mortgage lender Westpac and hike up their mortgage lending rates.
These moves are set to raise $1bn for each bank and are likely to face scrutiny, given that many households are already struggling with rising levels of debt and reportedly dipping into their savings to prop up their own spending needs.
This has contributed to a rise in Australia’s GDP above all seven of the major world economies but does not seem to have equaled out in wage growth or spending power for the average household. The mortgage rate hikes should meet with some outcry from Australians who will now have to spend more to buy their homes.
As the banks initially looked to avoid an out-of-cycle rise in mortgage rates, this backtracking will also stand out at a time when the Royal Commission inquiry into financial misconduct across the sector has raised a number of eyebrows already.
Hot on the tail of last week’s announcement by Westpac, both ANZ and CBA released their news within a very short space of time this Thursday.
CBA customers will see their mortgage lending rate increase by 15 basis points, while ANZ users will find theirs increasing by 16. CBA will introduce its new rate in just under a month, on 4 October, while ANZ customers will see changes implemented by 27 September.
The changes will be noticeable for the average household struggling with managing its finances, as a typical $400,000 loan will cost a new borrower an additional $450-$475 a year.
He added that although CBA was reticent to pass on additional costs to consumers, it was necessary to do so to “price our home loan products in a way that reflects underlying costs.”
Fred Ohlsson, ANZ’s Group Executive for Australia, also said that this was a “difficult decision” for the bank. He noted “the impact rising interest rates have on family budgets” but said that there is a clear need to “balance the needs of all stakeholders” as large-scale financing costs rack up and wholesale prices increase.
These moves come as the Reserve Bank of Australia (RBA) announced earlier this week that it will be holding interest rates at 1.5%, a rate that has stayed in place for two years and maintained a record low.
Considering the rising costs of sourcing finance from overseas, it has become harder for smaller lenders to keep the same level of borrowing without needing extra capital to allow the same level of liquidity.
The news of Westpac’s increase last week infuriated new Prime Minister Scott Morrison, who said that it should have to explain its decision to customers who will suffer from the out-of-cycle hike. The former Treasurer also told consumers to start shopping around for rates, but this may become more difficult as other lenders follow Westpac’s lead.
UBS Analyst Jonathan Mott suggested that Morrison and his new government may find a way to retaliate in a move that echoes the UK increasing the Bank Levy, which is currently at six basis points in Australia. The UK has made increases nine different times over the years.