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Non-major increases home loan rates

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Reporter 2 minute read

Bank Australia has announced that it will increase its variable interest rates for investor and owner-occupied home loans by eight basis points next month.

The non-major bank, which broke into the third-party channel in 2015, announced that the interest rates for variable interest investor and owner-occupied mortgages will rise by 0.08 per cent on 1 February 2017.

As a result, the bank’s standard variable rate will increase to 4.82 per cent (4.96 comparison rate) next month.

This means that customers with an owner-occupied loan paying the standard variable rate on a $250,000 loan will see their repayments increase by $11 a month (principal and interest home loan over 30 years).

According to acting CEO John Yardley, the rate increase was “a difficult but necessary decision for the bank”.

He said: “We always aim to be highly competitive and ensure that we treat our customers who own the bank fairly by balancing lending product revenue and the interest we pay our customers for their deposits.

“This is particularly relevant to Bank Australia as the money we lend to customers comes from deposits made by other customers.

“With the cost of securing deposits increasing as banks compete fiercely for deposits, this has placed pressure on the bank’s funding costs. As a result, we need to slightly increase our lending rates.”

Mr Yardley added that the changes will keep the bank’s home loans competitive.

The non-major bank is the latest lender to announce rate increases, after ANZ, Commonwealth Bank, Suncorp, QBE, Virgin Money all announced rate hikes in the last month, despite the official cash rate remains at historic lows.

Lenders have cited increased funding costs as the primary reasons for their recent mortgage repricing.

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Suncorp Bank, which lifted its variable rates for new and existing property investors by 15 basis points in December, noted that funding markets have changed significantly since the US election.

“Financial markets have witnessed some significant moves since the US election, particularly within global bond, currency and commodity markets,” Suncorp’s acting CEO Steve Kluss said.

“Bond rates have drifted higher since their record lows from the middle of the year and funding markets in Australia have also become more expensive due to a number of factors, including regulatory reforms.

“Bank funding is driven more by changes in bond rates than cash rates, which has put pressure on costs for variable home loans.”

[Related: ‘Disturbing signs of mortgage stress’ as rates rise]

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