Westpac will hike mortgage rates by 20 basis points on the 20th of November, and in a win for savers, increase term deposit rates by 25 basis points come Friday.
Australia’s other big banks could be expected to follow suit.
Westpac has blamed the rates decision on increased capital and regulatory requirements (‘Banking regulator announces tighter capital adequacy requirements for residential mortgages’ – 21st July 2015), while also announcing it will hit shareholders up for $3.5 billion to further increase CET1 capital. This follows ANZ’s announcement last week, indicating it will sell Esanda for $8.1 billion in a move also designed to bolster capital.
In recent months, most of Australia’s big banks have hiked mortgage rates for investors to appease the banking regulator and its directive to keep investor mortgage growth under 10 per cent.
Housing finance figures for August, released on Friday, showed dubious statistics suggesting a decline in investor mortgages of 0.4 per cent, while approvals to owner occupiers grew 6.1 per cent. The reversal of growth between investors and owner occupiers, coinciding at a time when banks were hiking mortgage rates for investors, suggested many investor loans may have been incorrectly, but intentionally classified as owner-occupier.
Westpac’s move today to equally hike both investor and owner-occupier will remove this potential incentive to reclassify loans.
Westpac was also hit by inflexibility with its computer system in July when trying to classify investor and owner-occupier loans (‘NAB hikes IO loans by 29 basis points, Westpac announces corporate note issue and hiring freeze while they fix computer issues – 27th July 2015.) A Westpac spokesperson at the time said, “Given we haven’t had differential pricing across the mortgage book for a number of years, if this was to be introduced we must ensure a smooth transition for affected customers.” Westpac later announced in August a hike of 27 basis points on investor loans.
A slowing China and plunging commodity prices has caused a spike in credit default swaps spreads for our big banks to the highest level since September 2013, putting upwards pressure on banks wholesale funding costs. Australia’s banking regulator, APRA, has expressed concerns about our banks reliance on volatile overseas credit markets and have been prodding banks to increase the amount of money raised domestically by term deposits. Westpac’s move today to reward term deposit savers could be seen as an early response to the regulator’s pleads.
» Westpac to raise home loan interest rates to protect against future financial crises – The ABC, 14th October 2015.
» Owner-occupiers overtake investors in home loan growth – The ABC, 9th October 2015.
» Bank risk spreads at two-year highs on China fears – The Sydney Morning Herald, 5th October 2015.