Major bank customers could wind up paying an extra $40 a month on their home loans, if banks do as they’ve suggested and hike interest rates in order to cover the Budget’s big bank levy.
The bank levy, announced in the Federal Budget last Wednesday, is a 0.06% annual tax on key bank funding, and affects the five biggest players in Australia, the Commonwealth Bank, ANZ, NAB, Westpac and Macquarie.
“Just a week following the big bank profit announcements, the Government have looked to the big banks to fill their budget black hole, leaving them the task of generating an additional $2.3 billion in revenue to fill the void,” said Mozo Director Kirsty Lamont.
Despite the fact that governing body APRA has been given the power to hold banks accountable for ensuing interest rate increases, critics of the tax and the major banks themselves were quick to point out that the cost would inevitably be passed onto customers.
“In recent times, the banks have justified rogue rate hikes for owner occupiers and investors under the guise of APRA regulations as well as claims of higher funding costs, and it’s highly likely we’ll be seeing another one of these instances,” Lamont said.
Last week, in response to the bank levy, Westpac Group CEO, Brian Hartzer, said that, “the cost of any new tax is ultimately borne by shareholders, borrowers, depositors, and employees.”
If banks remain true to their word and pass on the cost of the levy, Mozo calculations have shown that they could raise variable rates across the board by as much as 21 basis points. That could mean an extra $40 every month on the average $300,000 mortgage.
“As well as hiking mortgage rates, we are almost certain to see attempts to plug the profit gap in other crafty ways like slapping higher fees on home loans and credit cards and slashing at-call and term deposit rates,” added Lamont.
What mortgage customers can do now
If you’re a big bank customer facing the chance of a rate hike before the levy comes into effect on July 1 there are a few things you can do to combat the added cost.
- Re-evaluate your budget. Can you afford an extra $40 a month? That amount can quickly add up, so make sure you know where it will come from. You may find you have to re-adjust other areas of your budget to compensate.
- Think about switching. Our recent Experts Choice Home Loan Awards showed that smaller lenders often offer much better value than the big banks. With more rate hikes looming, it may be time to think about refinancing your home loan with a different lender that won’t be affected by the big bank levy.