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What do the latest bank rate increases mean for investors?

Updated: Oct 6, 2018


Despite the Reserve Bank leaving the cash rate unchanged at 1.5%, on September 6th the majority of the major banks have increased their variable interest rates out of cycle. We've included the relevant details that investors should be aware of below:


- CBA: increase of 15 basis points on variable home loan rate, effective 4th October.


- Westpac: increase of 14 basis points on variable home loan rate, effective the 19th of September.


- ANZ: variable home loan rate increased by 16 basis points, effective the 27th of September.


NAB has decided to hold their variable mortgage rate unchanged.

 

What does this mean?


A home owner with a $300,000 home loan that banks with CBA, Westpac or ANZ will be required to pay an extra $35 in interest per month on average, or $420 per year.


A home owner with a $500,000 home loan will spend an extra $43 a month in interest or an additional $516 a year.


Why did the banks raise their rates?


There are two main reasons the banks have raised their rates:


1. Increased funding costs for banks

All of the banks have attributed the rate rise to increased funding costs. CBA's Group Executive for Retail Lending said: “We are very conscious of the impact that increasing interest rates will have on our customers, however it is important that we price our home loan products in a way that reflects underlying costs."


2. Market conditions and slowing mortgage book growth

As we’ve been seeing house prices grow more gradually, this has meant that the overall mortgage market has also been growing at a slower rate.

 

We hope this short article on the latest interest rate rise provides more background to why the majority of the banks have chosen to increase their rates. If there are any questions please contact us. We can provide a detailed description as well as our outlook on future interest rate movements.

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