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Cost pressures compel bank to pull rate trigger

by Charbel Kadib10 minute read
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A bank has succumbed to wholesale funding cost pressures and increased rates on its home loan offerings by up to 18 basis points. 

The Bank of Queensland (BOQ) has announced that, effective Friday, 11 January , it will increase interest rates across several of its home loan products in response to the sustained rise in wholesale funding costs.  

BOQ noted that its rate hikes include an 11-basis point rise on its Economy Owner-Occupier Principal and Interest product, and an 18-basis point increase on “a number of other BOQ home loans and lines of credit”. 

However, BOQ stated that there will be no change to its Clear Path Owner-Occupier Principal and Interest rates.


Commenting on the changes, Lyn McGrath, BOQ’s group executive, retail banking said: “Continuing funding cost pressures and intense competition for term deposits have contributed to this decision. 

“While decisions like these are never easy, offsetting the impact of these costs ensures we balance the needs of our borrowers, depositors and shareholders.”

Reacting to the news, RateCity.com.au research director Sally Tindall said she expects BOQ to be the first of many lenders to lift rates out-of-cycle in 2019.

“These cost of funding pressures are affecting most banks so it’s likely we’ll see other lenders follow suit in 2019,” she said.

“Meanwhile the banks have lost potential customers as a result of the falling property market and the tightening of serviceability requirements, both of which are also putting pressure on their bottom line.”

Ms Tindall added: “While banks are entitled to make a profit, some Bank of Queensland customers will be disappointed with today’s decision to increase interest rates.

“A lot of household budgets are feeling the pinch after Christmas. While most families will be able to absorb this hike, some may struggle to come up with the extra cash.”

BOQ’s is the latest bank to hike its home loan rates after several lenders, including three of the big four banks, increased rates throughout 2018, also citing the rise in funding costs.

However, BOQ’s move follows the announcement of a mortgage rate reduction by Commonwealth Bank-owned lender Bankwest, which reduced rates by up to 16 basis points on several of its owner-occupier home loan products. 

The out-of-cycle interest rate hikes have come against a backdrop of cash rate inertia, with the Reserve Bank of Australia keeping the cash rate at a record-low of 1.5 per cent

Cash rate stagnation amid out-of-cycle rate hikes has prompted some observers to claim that the next move in the cash rate could be a cut, particularly in light of tighter credit conditions, the slowdown in the housing market, and high household indebtedness. 

However, the RBA has maintained that the next rate move will be up, pointing to the underlying strength of the Australian economy. 

[Related: NSW drives national rise in mortgage rates]

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Charbel Kadib


Charbel Kadib is the news editor on The Adviser and Mortgage Business.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

Email Charbel on: [email protected]