Westpac hikes interest rates

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.


  1. I CAN FEEL A BANK BAILOUT COMING ON. With the big four insolvent (24 to 30 times leverage on capital) and dependant 40% on overseas wholesale funding it only takes a 4 year old with a calculator to work out that any slight downturn will tip them over the edge.(A 4% decline in asset values will wipe them out) But fear not the RBA white knight is ready with $380 billion taxpayers dollars called the Committed Liquidity Facility. Even on a world scale this rates as the largest moral hazard ever offered by any government to 4 of its banks.


  2. The amount of “mortgage owners” and “investors” complaining on the mainstream newspapers comments is hilarious. Banks are not a charity.

    And two real estate agents floating their businesses. Yeah, future looks bright I have to wear shades hahahahaha.

  3. Less than one month with the bankers PM, and the banks flex their muscle.

    All according to plan: Read ‘The creature from jeckyll island’

  4. nexusxyz – Yep totally agree, and that will be the next audacity like gambling should guarantee a win.

  5. Rate increase is starting to bite it would seem… I attended an auction in Sydney’s west today for a townhouse that didn’t go ahead due to no registered bidders. The agent told me the vendors were willing to do a deal today at 62k less than a similar townhouse in same block that sold 3 months earlier (with 20 registered bidders)….Let the bloodbath begin.

    Looking forward to SMH articles in the week ahead showing further declines in auction clearance rates.

  6. I’ve seen a lot of talk in the media about there being a rate cut from the RBA because of Westpac’s increase. Not sure how 1 out of 4 big banks raising variable rates by less than .25 should be enough reason to give another .25 rate cut!

    Also a lot of the usual RE vested interests whining about Westpac being out of line because apparently they make a profit.

  7. @8
    Yep didn’t even take that long. Just heard this weekend had a 65% clearance rate, the lowest in Sydney in 3 years. Macquarie Bank suggested a drop in house prices of 7.5% next year, I think maybe in houses, but units I think will fall a lot more. Finally I think we are starting to see this stupid, unrealistic property rort of the last 10 or more years coming to an end. Immigration is on decline, interest rates increasing, crook property developers (councillors) still going ahead with large projects and no other industry to bolster the economy. Supposedly employment dropped last month, maybe it did but I’ll bet it was with the under employed which contributes nothing to the economy?
    Funny enough Perth has been in a slump for a while know, but property prices seem to be holding. I think with the latest developments with the banks this will change quickly, we’re definitely heading for a recession, but when..
    I’m still holding on to my piggy bank for know, hopefully I can break it open this time next year!!

  8. Talking about auction, I attended one yesterday in Hornsby and the result is interesting. The location is good with a lucky street number. You guess what, about 4 or 5 registered bidders and it turned out no one would like to give the first bid until a few minutes later after the auctioneer kept promoting the house. It’s even interesting that first bid was already 1.35M and the competition was around two main bidders. After 4 bids drove the price to 1.39M and the hammer never fall. The auctioneer was quite embarrassed to hold the auction because a bidder needed to make a call to the real buyer. Wondering how ridiculous an auction was. I didn’t feel being excited there and felt it’s not like an auction. At the end, auctioneer asked the last bidder volunteer to increase the bid price because obviously the reserve price was reached. Following the auction regulation, the bidder wasn’t required to do so and leave the auction passed in and then he could negotiated with the seller directly for a reasonable price. I believe the agent didn’t want to see this because ‘cool-off’ period is applied to a non-auction deal. At the end, the agent played as a negotiator to bargain the price for both sides (conflict the interest as commission is a fixed percentage of the sold price. About ten minutes later, the deal was done at 1.417M but I checked the auction report when home and found the price was even higher at 1.422M. If that family didn’t bid, I bet the result is PI.

  9. Guys don’t trust the auction results: They’ve been unreliable for years. Both on the up and the downside.

    When we are bombarded with news stories of people not being able to sell, then we will have reached the top.

    If that house did sell in comment #12, for an amount above the auction, then there’s the proof that there as still idiots paying “asking price”.

    Until that changes, nothing really changes. Sorry to be a kill joy on price falls. They are coming, but not just yet. Someone well respected told me that Australia WILL see the steepest declines of any housing bust yet.

    But it’s not quite here. Patience people.

  10. I don’t understand why your all waiting for a crash to buy in to the market because when it comes you won’t have a job to service the bloody mortgage. Australia has been so long without a recession you have no idea what comes with it…..clueless.

  11. If you are so confident of not having a job, I’m not sure why you would commit to a 30 year mortgage. What are you trying to say?

  12. Damian,

    As I suggested a week or two ago, some of us aren’t buying because we know we may lose our deposit if we do (we cannot service the debt – i.e. lose our job and have a force sale with a drop in price of more than our deposit/capital). If we don’t purchase, at least then we have a safety net – our savings. Capiche?

  13. @Damian,
    You don’t get the point. You don’t have to buy at a lower price to win in a falling market. If prices are falling, so are the rents but return on other assets (bonds or deposit) will go up. It means that you can keep renting but pay off a bigger part of your rent with higher returns received from other assets.
    People usually don’t understand that paying a mortgage is exactly the same than paying a rent.
    When capital growth is over about 4%/year, you win when buying (assuming you bought in a nice location, a good condition house and for a few years).
    When capital fall under 4% growth/year, you loose money in proportion to the leverage (x10 if you owe a 90% finance loan for example) The loss can accumulate very quickly and put you in bankruptcy much faster than you think.

  14. “when it comes you won’t have a job to service the bloody mortgage”

    Even in the great depression 50% of workers kept their jobs. The people hit hardest were factory workers, cleaners, part timers and minimum wage employees. These are the people who are ‘property investors’ today leveraged up and using negative gearing 😉

    I’m none of those and I’m confidant I’m in the top 50% of my industry. Bring on the recession and teach those property speculators a lesson on how real markets work. The sooner the better.

  15. @14
    You have almost answered your own statement…..obviously real estate requires steady income….there are other investment opportunities

  16. @ Damian,

    Realistically I cannot see employment improving in the next 5 years, especially with many industries such as the Car and Steel industry closing shop in Australia.
    Both these industries employ tens of thousands of people, not to mention all the supply chain down the line.
    If the housing market sinks it will take many industries with it and we will go into a deep recession lasting many years.
    Yes pain in the short term, but better in the long term at least my children will have some hope of home ownership and living a decent life.
    It will address all the imbalances in the economy and push prices lower – fingers crossed!

  17. @ comment 13. Matty is correct. RE agents have manipulated auction stats ever since it became in vogue to sell by auction. So yes they are largely meaningless
    Look at the actual listing prices on Domain or Realestate.com.au, theres your indicator. As long as people are holding out and insisting on current prices, there is no change.

    In any case, to chart a trend you would have to see consistent downturns over 3 or more quarters across most of Australia, not just bloody Sydney and Melbourne, which have a real estate sales/marketing paradigm all their own.

    Remember only a third of Australia lives in Sydney and Melbourne. Auctions as a selling method have lost their gloss in most other parts of Australia where there is no similar buyer frenzy or “the Block” mentality.

  18. @14
    The alternate Damian is sky rocketing debt, a broken tax system, manipulation of the big 4, increasing unemployment, Chinese buying up everywhere and pushing up prices, unaffordable housing, increasing poverty, using superannuation before retirement, the list goes on.
    What you fail to realise, we are a country living well above our means and hence living in an ever increasing debt. A recession is also considered a correction and it’s well overdue!!
    I have lived through 2 recessions, therefore its taught me to be careful and try to educate myself so I wouldn’t fall into the trap that has been set today.
    Yes unemployment increases considerably, but there is always work, the country still runs.
    So when you label everyone here as “CLUELESS”, I think you should have a good hard look at how government, banks and big business have from greed and self preservation manipulated us for their own purpose.
    Something tells me your in it to your eye balls, I sincerely hope not!!

  19. Call it what u like…..paying a million and more for a shithouse in Sydney is not investing…..its gambling……more than happy to watch.

  20. Who knows what’s going to happen with the mostly Sydney/Melbourne property bubble, and the Australian economy in general?

    I don’t think property prices will crash 40 or 50%, but Australia is not immune to economic upheaval, and I hope I am wrong, but it looks like Australia is rapidly heading towards a very nasty recession. The mining boom is dead, and even if property was to plateau, then what other industries does Australia have?, manufacturing is virtually dead and buried, then what?

  21. perth has been flat for a few years now,i wonder if the banks have quietly repoed houses and have thousands on their books but have manipulated the results by calling it something else so it dont show on stats

  22. the reason i say this is i know at least 5 people personaly who have gone bankrupt thru housing that why i am very sceptical about the 1 or 2% official line..i wonder if they have repackaged these houses and sold them overseas

  23. Dutch Tulip Bubble
    South Sea Bubble
    Japan Real Estate and Stock Market Bubble
    The Dot Com Bubble
    US Housing Bubble
    Australian Housing Bubble

    Those who ignore history are doomed to repeat it.

  24. Prices don’t necessarily need to crash or drop as such….even a sideways movement for a lengthy time will create the same result after a period of time. After say ten years the net result can be the same. It will sort itself out, personally it’s not the time for debt in general.

  25. Just looked at some of your comments….maybe “clueless” was a bit harsh but I’ve lived in two very different economic climates since 2003. Australia from 2004-2008 and Ireland from 2008-2015. I’ve witnessed both extremes of a property bubble first hand and the damage a property crash has on the rest of the economy is catastrophic. It impacts the working and middle classes significantly. I’ve seen dentists, doctors, lawyers lose everything on property speculation. My best mate took a gamble at the peak and lost the lot. He was an Architect so he also lost his job when construction tanked. Banks laid off thousands because everyone stopped taking out mortgages and home improvement loans. People were in denial for about a year but it soon became apparent who was swimming naked when the tide went out.If you think your immune to a recession…….think again.

  26. The housing bubble markets worldwide are really just Central Banks’ Pump ‘n Dump schemes. The idea is to get as many victims on board before pulling the plug. When the markets start to slow and bank profits drop, they move into phase 2 which involves taking real assets in exchange for currency they created from thin air. Phase 3 is to wholesale seized houses to Hedge Funds who in turn resell them or rent them. All asset markets deflate, banks are bailed out for any false losses, the economy resets then you start again. So simple, when you realise the central banks are not there for your benefit.

  27. @ Damien

    Some people will be immune to the recession if they are prepared and cashed up. In the last great depression 40% of the population were not greatly affected. They included public servants, essential services like medical and of course high net worth individuals. Think of the coming downturn as a great opportunity to buy assets at the bottom of the market and perhaps learn new skills to start new businesses.

  28. Max is right, and history has shown time and time again the masses don’t get it. We have been conned into allowing our whole livelihoods being railroaded into a casino.

  29. @Battered Sav, 65% clearance rate. There have been a few articles over the last two years that point out that the clearance rate reported on Sundays is modified during the week when the figures for pass-ins come trickling in and no auction clearance rate has exceeded 51% ever. What does this say when they are reporting 65% clearance which would reflect their Sunday figures (as reported exuberantly by Channel 9 news Victoria as if this was a news article). Probably they are down to 30-40% in real terms when all the figures come in.

  30. @Chockolate:

    “We have been conned into allowing our whole livelihoods being railroaded into a casino.”

    Beautifully put!

  31. I think we need to accept us Australians no longer matter to our politicians, it’s all about keeping the illusion of ‘growth’ no matter what the consequences to society. Gotta keep that monetary base growing at all costs, even if we have to sacrifice a generation or two.

Comments are closed.