Banks Unlikely To Raise Variable Rate Mortgages Further

Post by Sharat on June 17, 2009 · Under Australian Economy, banking, home loans, interest rates, mortgages · Comment

An unnamed banking executive with a Big Four lender has told The Australian that banks were unlikely to tinker further with their variable rate mortgages and that more rate increases would be unlikely.

As more lenders increased their interest rates on fixed rate mortgages on Tuesday, the banking executive dampened expectations that other major lenders would follow Commonwealth Bank’s lead and increase the interest rate on their variable rate mortgages, after CBA to much derision increased its variable rate mortgage interest rate by ten basis points.

The unnamed source made the point that CBA offered the lowest variable interest rate, which was still 17 basis points below its nearest Big Four rivals NAB and ANZ.

The executive said the differential in interest rates meant that CBA, the largest mortgage lender in the country missed out on $200-$300 million in revenue. Such a strategy would have meant that CBA would have had to have made lower quality loans in order to bridge the revenue gap.

CBA, whose decision to raise its interest rates despite The Reserve Bank of Australia having cut official interest rates by 425 basis points since last September, was controversial to say the least, has cited increasing wholesale funding costs and increased competition for deposits as the reason for their decision.

Senior figures in the government have expressed discontent with CBA’s decision, with the Prime Minister accusing banks of price gouging, saying that the banks move had undermined economic recovery and Australians had a right to be “furious”.

Federal Treasurer Wayne Swan slammed CBA, which also lifted offered interest rates on its fixed products as being “selfish”.

On Tuesday NAB, Westpac and its subsidiary St George Bank all followed suit and raised their rates on fixed rate mortgages.

Westpac raised interest rates on one fixed rate loans by 10 basis points, its two year product by 20 basis points and loans with duration of 12 years by 50 basis points.

NAB increased its interest rate on fixed rate loans with a duration of two to ten years by 15 to 40 basis points.

Steven Shaw NAB’s General Manager for Mortgages said NAB’s decision to raise interest rates on its fixed rate products was taken last Thursday, but said that decision would not have any implications for its variable rate mortgages.

“We have no current plans to lift our variable rate,” Mr. Shaw said.

Fixed interest rate mortgage costs have actually been rising for some time now, Mr. Shaw said, with rates having increased by as much as 100 basis points over the last month or so.The increase in fixed rates is as a direct consequence of the long term wholesale funding costs also having risen over the same period.

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