Westpac was the first of the big four banks to increase rates by 0.14% across all products. Followed by ANZ, and CBA’s announcement to do the same yesterday. Could we be starting to see a trend, and does it look like other lenders will follow?
Firstly, What Would Have Caused The Increase?
Despite the Reserve Bank leaving the cash rate unchanged at 1.5%, Westpac CEO Brian Hartzer has attributed the rate increase to higher cost of funding, particularly ‘Wholesale Funding’. ‘Wholesale Funding’ is a term used to describe borrowing money from other banks and investors both domestically and overseas. Currently, the way banks gather the funds they lend to customers is through the deposits their customers hold with them, and short-term and long-term Wholesale Funding. The availability of wholesale funding allows the bank to provide customers with funding during periods of high demand.
As can be seen, the use of Wholesale Funding does not come at a set cost. Westpac’s investment owner announcement showed an increased cost of wholesale funding of 24 basis points between January & June this year. Due to continuously changing global economic volatility, fluctuations in the cost of Wholesale Funding are not uncommon, and the bank usually absorbs the fluctuation. Until it is no longer within their acceptable profit margin, which is when the cost is passed on to the customer.
What will the effect be on you, or potentially be on you, if other lenders increase their rates?
According to the Australian Bureau of Statistics, as of May 2018, the average Australian Home Loan is $400,100. A 0.14% increase in the interest rate equates to an increase in interest cost of $560.00 per annum to the average Australian Home Loan, or $12,903.00 over the life of a 30-year loan term.
How can you beat the banks?
Following Phillip Lowes’ advice (Governor of the RBA); “I encourage anyone with a mortgage to shop around: there are some very good offerings out there” and we tend to agree with him. There are still competitive offers in the market, particularly in the fixed-rate space. An example would be interest rates as low as 3.99%* Interest only for investors.
Call Us Today and Find Out How We Can Help Beat the Banks.
* “Comparison rate 4.50%. Rates are effective 17/07/2018 and are valid until withdrawn and are subject to change. Normal credit and lending criteria and terms and conditions apply”