CBA Likely To Raise Standard Variable Rates

Post by Sharat on June 11, 2009 · Under banking, home loans, interest rates, mortgages · Comment

Australian banking major Commonwealth Bank of Australia (CBA) has said it cannot guarantee that its mortgage rates will not rise before the Reserve Bank of Australia meets next month.

Market analysts believe that the Australia’s biggest mortgage lender will increase the interest rate on its standard variable rate home loan by 10 basis points as funding costs continue to increase.

CBA along with its other Big Four rivals have failed to pass on the entire cut in official rates implemented by the RBA, and any increase in mortgage rates is likely to spark controversy.

Currently the lowest mortgage rate offered comes from Members Equity which is offering an interest rate of 5.39 per cent, though amongst the Big Four, CBA has the lowest offered interest rate of 5.64 per cent.

CBA’s offered rate is 10 basis points lower than rival NAB, whilst ANZ and Westpac are offering mortgages for 5.81 per cent.

A spokesperson for CBA refused to comment on whether the lender would raise mortgage rates as soon as this week but did confirm that it was reviewing its standard variable rate loan rate.

“Our rates are always under review and our long-term cost of funding our home loans is continuing to increase. There is also competitive pressure coming from the term deposit market which is adding to our costs.” The spokesman said.

CBA’s chief Ralph Norris in early February suggested that the bank would perhaps not follow the RBA’s lead in setting its mortgage rate. CBA has not passed on 82 basis points of the more that 400 basis point cut in interest rates since January 2008.

“Our margins have been reduced since the beginning of the credit crisis, below the level we regard as acceptable. That’s why we have indicated we may not be able to pass on future rate cuts in their entirety.” Mr. Norris said back in February.

Though Australian banks have cut their short term deposit rates in line with official interest rate cuts, deposit rates with longer maturities have in fact risen from an average 3.5 per cent in March to over 5 per cent in the last couple of weeks.

Smaller lenders triggered the increase in term deposit rates after being unable to take advantage of the sovereign funding guarantee in the same way that the Big Four were able to, on account of higher fees under the guarantee scheme.

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