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APRA rules force non-major to reprice home loans

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APRA rules force non-major to reprice home loans

James Mitchell 2 minute read

According to the CEO of an Australian challenger bank, rising funding costs and APRA’s investor lending growth cap have driven the group to announce rate changes across its residential mortgages.

ME Bank will decrease its one-year fixed owner-occupier and investor loans by 10bps to 3.89 per cent p.a. and 3.99 per cent p.a. respectively, while increasing its two-year owner-occupier loans by 10bps to 3.94 per cent p.a.

The bank's three-year fixed owner-occupier and investor loans will increase by 15bps to 3.99 per cent p.a. and 4.09 per cent 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 per cent p.a.

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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,” Mr McPhee said.

“ME is moving to a new regulatory regime on 1 January 2017 (the liquidity coverage ratio), requiring it to compete for more deposit funding.”

Mr McPhee also said Australia’s smaller banks are 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 per cent while ‘advanced’ banks enjoy a mortgage risk weight of 25 per cent,” he said.

“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.”

[Related: Broker sees anxious borrowers flock to fixed rates]

APRA rules force non-major to reprice home loans
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James Mitchell

James Mitchell

James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.

He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.

He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.

James holds a BA (Hons) in English Literature and an MA in Journalism.

 

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