More banks to follow Westpac’s interest rate rise
Article by Kirsty Timsans
Mozo has predicted that Westpac’s decision to independently increase interest rates on its owner occupier loans will be followed by other lenders.
“We find that when one of the majors make a change like this, others follow,” said Mozo Director Kirsty Lamont.
According to Lamont, Westpac’s decision to increase interest rates early is a “bold move” given that APRA’s mortgage capital requirements do not come into effect until July 2016 and tipped more banks are likely to follow its lead.
In July this year, APRA announced increases in the amount of capital required to be held by lenders against residential mortgage lending with the average risk weighting for home loans to be raised from around 16% to at least 25% from 1 July 2016.
Mozo calculated Westpac will earn an extra $1.59 million in interest each day from the rate rise which will impact existing and new owner occupier and investor loan customers.
Lamont said that lenders are currently looking at ways to meet APRA’s requirements including raising interest rates, not passing on official interest rates cuts and curbing discounts.
“If the RBA cuts rates on Melbourne Cup day, we could see banks holding back part of a rate cut or not passing on cuts altogether,” she said.
“The ‘borrower bonanza’ of sub 4% variable rates and incentives we’ve seen lately may become a distant memory come 2016.”
This decision comes as Westpac, St. George, Bank of Melbourne and Bank of SA agreed to increase their at call and term deposit rates in a bid to increase the ratio of deposits as a funding channel.
“After a long period of uncompetitive savings rates, deposit holders might have some light at the end of the tunnel with rates likely to increase over the next months, thanks to the new capital rules,” Lamont said.
Westpac increased the introductory interest rate on its eSaver account by 6 basis points to 3.31%. Meanwhile, the rates on its 4 and 6 month term deposits rose by 10 basis points and 1 year term deposit rates were upped by 5 basis points in September.
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