Out of cycle home loan rate rises land big banks $4.6 million in extra profit each day

The big four banks are set to make an estimated $1.7 billion in extra interest each year, or $4.6 million a day, thanks to recent out of cycle home loan rate rises according to Mozo data.

The calculations, based on APRA’s monthly banking statistics, reveal that since the latest variable rate increases in late March the banks have made roughly $100 million in extra interest, with Westpac leading the way earning $49.8 million in extra interest as of May 1.

RELATED: Why low interest rates don’t always mean it’s the right time to buy.

Increases in investor rates by the big banks accounted for the bulk of the interest, with ANZ ($20.6 million), NAB ($18.9 million) and the Commonwealth Bank ($8.3 million) all earning tidy amounts of extra interest between the end of March and May 1.

In March APRA announced a number of lending restrictions in order to stem rising house prices, including bank limits on interest-only investing, with many lenders increasing investor and interest-only rates in order to ensure compliance with the APRA changes.

“The bottom lines of the big banks have really been unexpected beneficiaries of APRA’s curbs on investor, and more recently, interest-only loans,” said Mozo Director Kirsty Lamont.

ANZ yesterday announced a first-half cash profit of $3.4 billion just days after lifting fixed interest-only rates by as much as 0.40% - evidence, Lamont suggested, that the out of cycle rate hikes may not have been completely necessary.

“With mortgage stress steadily growing every year despite stagnant wage growth the big banks may find it more and more difficult to justify these out of cycle rate increases while posting significant profits,” she said.  

Westpac and NAB are set to make first-half results announcements of their own in coming days, while the Commonwealth Bank, who already posted a $4.9 billion first-half profit in February, is expected to announce their full year results in August. 

Lamont suggested that borrowers affected by the big bank rate hikes should consider making the switch to a smaller or non-bank lender for a better deal on their home loan.

According to the Mozo database (at the time of writing) the best variable rate on offer is from Mortgage House at 3.73%. For a borrower signed up with the current average big four rate of 5.28% (and a $500k mortgage) by making the switch they would save $131,763 over a 25 year loan.

Are you feeling mortgage stress of your own? Don’t hesitate, head on over to the Mozo home loan hub to compare the best rates on the market.