The big banks are under increasing pressure to move interest rates as more lenders make changes in response to increased costs.
Over the last week ten institutions have changed their interest rates to home loan products, with a total of 53 product level changes recorded.
While we have seen a number of rate increases over the last few weeks, despite the Reserve Bank of Australia (RBA) holding the cash rate, not all of the changes have been increases.
According to the information from comparison site Canstar, Yellow Brick Road made changes to all home loan types.
Mortgage House dropped its fixed rate investment products by 61 to 72 bps. It also made some changes to its owner occupier fixed rate products with interest rate decreases of 8 to 26bps.
Westpac also made changes this week. It increased its owner occupier fixed rate interest only home loans by 5 to 15bp.
Suncorp also made changes to its fixed rate products, decreasing the rates of its investment loans by 10 to 40bps.
Explaining the changes in interest rates, Steve Mickenbecker, group executive, financial services, at Canstar, said, “We are seeing a classic bit of churn that tends to happen at the top or bottom of a market.
“It has only just started in the last month or two, and we’re quite a while from seeing the end of it. The upward pressure is mounting, and at the same time the banks want to hold some competitive rates in the market.
“With LIBOR and BBSW up 40 basis points in a month, it’s not surprising that we are seeing rate increases.
“The cost of wholesale funding is rising, which ultimately has to find its way through to home loan rates. At this stage it is the second-tier banks that have increased their variable rates by 8 to 10 basis points, not the big banks.
“The funding pressure sees some fixed rates rising, while other banks have moved down to maintain a competitive rate in the market for new business as they have increased their variable rates across the book for both the existing and new.”
While so far it has been the ‘second-tier’ banks changing variable rates, Mickenbecker said “big banks are under even more pressure”.
He added, “With around 80% of existing loans provided by the big four and the bulk in variable rates, any move in variable rates is going to flow through to most Australian borrowers.
“In the political world of banks through this Royal Commission, an increase is going to only increase the opprobrium. Westpac has moved interest only fixed rates up, reflecting that even the big lenders are feeling the funding pressure.
“But in terms of margin across the Westpac portfolio, the increase will hardly make a difference. With most big banks funding around 60 to 65% of their loan book through retail deposits, they have some buffer from wholesale funding increases.
“However, sooner or later they will have to move variable rates up. The timing might come down to when they feel they can face down the community.”
