Non-major bank raises variable home loan rates

The interest rate for owner-occupier principal and interest (P&I) home loans will increase to 5.57 per cent p.a. (from 5.42 per cent p.a.), while the rate for owner-occupier interest-only (IO) home loans will rise to 5.92 per cent p.a. (from 5.77 per cent p.a.).

Customers with an investment P&I home loan will be required to pay an interest rate of 6.22 per cent (up from 6.07 per cent p.a.), while those with an investment IO loan will be paying a rate of 6.47 per cent p.a. (up from 6.32 per cent p.a.).

Like the lenders before it, Bankwest attributed its decision to a “sustained rise in wholesale funding costs”.

The bank’s managing director, Rowan Munchenberg, said: “The cost of borrowing has risen significantly since the start of the year, but so far we have been able to absorb these costs to minimise the impact on our home loan customers.

“I encourage home loan customers to contact Bankwest to explore the full range of options available to them to ensure their current arrangements are meeting their individual needs.”

Bankwest is among a long line of lenders to increase their rates out of cycle in recent months, including its parent company Commonwealth Bank and two of its big four rivals, ANZ and Westpac. The three majors raised their rates by 14 to 16 basis points.

NAB, on the other hand, decided to buck the trend and keep its rates on hold, which was commended by the new Prime Minister Scott Morrison.

Non-major lenders — including Macquarie Bank, AMP, ING, Bank of Queensland, Heritage Bank, Virgin Money and Auswide Bank — had also announced increases to their home loan interest rates, with most citing rising wholesale funding costs as a key driver behind their decision.

The way the banks price their home loans has been under regulatory scrutiny in the past year, including during the ongoing Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and the Productivity Commission’s inquiry into competition in the Australian financial system.

The Productivity Commission stated in its final report that data on profitability, pricing and product development show that there is non-competitive pricing in the banking market, especially the prices set by major banks, and the banks’ refusal to acknowledge their power over market prices is further contradicted by a “recurring argument” the industry has used against increasing costs, which is that such cost rises will have to be passed on to consumers.

The PC report further mentioned that despite changes to prudential regulations resulting in increased funding costs, the major banks have been able to recoup these higher costs by increasing interest rates for borrowers and the rate hikes did not result in them losing significant market share to smaller players offering cheaper rates.

The Australian Consumer and Competition Commission was earlier this year granted an extension to its inquiry into how the banks affected by the Major Bank Levy explain any changes or proposed changes to fees, charges or interest rates in relation to residential mortgage products. The inquiry relates to prices charged until 30 June 2018.

[Related: 3 of the big four banks hike rates]