| 30.08,18. 05:29 AM |
Westpac raises variable mortgage rates
Photo: Westpac is lifting its standard variable mortgage rates by 14 basis points. (Reuters: Steven Saphore)
Westpac will increase its variable mortgage rates to counter rising funding costs that are threatening the bank's profit margins.
It is the first of the big four banks to raise interest rates for all its variable home loans this year, although many smaller banks had already moved to offset higher costs.
The bank said all variable mortgage rates will rise by 14 basis points (0.14 percentage points) from September 19.
The increase will apply to new and existing customers, and affects both owner-occupiers and investors.
Chief executive Brian Hartzer told the ABC's PM program that a rise in interest rates on financial markets — particularly Australia's 90-day bank bill swap rate (BBSW) — has increased Westpac's costs.
"That started going up in February, we were hoping that that would go back down, it hasn't and, after six months at a sustained level, we've reluctantly concluded that it's going to stay at that more elevated rate, and therefore we came to the conclusion that that needed to be reflected in the price of our loans," he explained.
While Mr Hartzer does not expect the cost of wholesale funding to come down, he also does not expect it to rise further, implying that this may be a one-off out-of-cycle rate increase.
"We've come to the conclusion that the wholesale borrowing cost seems to have stabilised at about this level and therefore that's how we've done our calculations and why we've landed where we did," he told PM.
"We don't like changing rates and we definitely don't like changing rates out of cycle — it's not the sort of thing that we relish doing."
Westpac said that the 14-basis-point increase will add $35 a month to the repayments on a $300,000 mortgage.
But Mr Hartzer said the bank is confident its customers can afford it, given a 2.5-percentage-point rate rise buffer when assessing new home loans, and the fact that mortgage rates remain lower now than they were three years ago thanks to RBA rate cuts in 2016.
"We believe our customers are well-positioned to deal with the increased cost that comes through from this," he said.
Westpac may be alone in rate rise: analyst
When asked if there were unique factors that made Westpac more vulnerable to these rising funding costs, Mr Hartzer replied, "I don't think so".
However, CLSA banking analyst Brian Johnson told ABC News that Westpac was facing bigger margin pressures than its big four rivals.
"The reason for that, and we saw this in the recent quarterly result where the margin tumbled 11 basis points, is Westpac have a bigger interest-only book and enjoyed a bigger upwards repricing, and now as people switch to principal and interest that reverses," he observed.
Mr Johnson also said Westpac had less household savings deposits than its biggest rival, the Commonwealth Bank, and therefore relied more on wholesale funding, where costs have risen steeply since the start of this year.
So, while smaller banks have generally been raising their standard variable mortgage rates, Mr Johnson is not convinced that the other major banks will follow Westpac's lead on this occasion.
"Against the scrutiny of the royal commission, and perhaps a federal election, you can't say this is without risk," he said.
"If it were just driven by the very short term, I would've thought 'yep, of course they'll follow' but, given the degree of scrutiny and the risk the federal bank levy could be increased — because in Australia that levy is 6 basis points, but I can point to a number of countries where that figure is above 20 basis points — so the risk is we could see that levy increase quite significantly."
Banks hunt for less risky borrowers
Westpac's new standard variable rates will vary considerably from 5.38 per cent for owner-occupiers with principal and interest loans up to 6.44 per cent for property investors with interest-only loans.
The chief executive of Westpac's consumer banking division, George Frazis, encouraged interest-only customers to consider shifting to the lower-rate principal and interest loans.
"Importantly, customers wanting to switch from a variable interest-only loan to the lower rate principal and interest loan can do so without any penalty or fee," he noted in a statement.
The banking regulator placed a 30 per cent cap on interest-only lending as a share of all new home loans, while also encouraging banks to rein in investor lending, leading to the big difference in rates between the products as banks encourage customers to switch.
Westpac is Australia's biggest mortgage lender to property investors and has a high share of interest-only loans.
While Westpac and many smaller banks are raising rates, ANZ cut interest rates for some new customers earlier this month.
ANZ told mortgage brokers it was bringing down its basic principal and interest home rate for owner-occupiers by 0.34 percentage points to 3.65 per cent.
The ANZ offer only applies to new customers looking for a loan valued at 80 per cent or less than the value of their property.
Loan-to-value ratios above 80 per cent remain unchanged at 3.99 per cent.
That move comes as banks look for lower-risk customers who will help them meet tougher new APRA requirements about their home lending standards.
Not all customers are able to take advantage of such offers, however, with some higher-risk borrowers finding it increasingly difficult to refinance their existing debts.