If you have a variable rate home loan in Australia, then there is a good chance that your interest rate will increase before the end of November. Several banks have announced that they will increase their variable mortgage rates. They are giving their customers a rate hike at a time when the Reserve Bank of Australia has left the official cash rate on hold at 2.00%
The increase will affect all residential mortgages. For those with investment properties this rate hike will be in addition to the changes to investment lending we saw in July. Getting a home loan has become more difficult. Unfortunately, we suspect this is not the last change we see for the Australian mortgage industry.
The size and timing of the bank initiated rate hike, will depend upon which lender you have your mortgage with. If you have a variable rate mortgage with one of the 8 banks we researched, then the table below will show the size and timing of your rate increase. We have also estimated how much additional interest your mortgage will cost you per year.
The banks are uniformly stating that the rate hike is necessary because 'lending will become less profitable' under the new regulations. It's a move to protect profit growth and keep the shareholders happy. Home owners will have their monthly mortgage payments increased so that the bank can keep their profits and share prices growing.
The APRA capital adequacy changes are only relevant to the banks which use the internal ratings-based (IRB) system of credit risk. There are only five lenders in Australia using this system, they are: ANZ, Commonwealth, NAB, Westpac, and Macquarie. As a further measure to protect their profits, these five banks have been cutting jobs. Between the five lenders there have been almost 1,500 jobs lost over the last 6 months.
As customers, with monthly mortgage payments, it is insulting that the bank would take extra money from us purely to keep the shareholders happy, but it could be worse! At least they didn't take away our income. That was saved for their own staff members. As with any company, banks are in business to make money. It just seems unfair when money and jobs are being taken from every day working people in order to maintain corporate growth figures.
The top decision makers within the banks (who earn the highest wages), will always focus on the shareholders. After all, it's the shareholders who have the power to vote them out of a job if they don't perform well. There is also the fact that their annual salaries usually include shares or options in the company. This means their personal wealth is directly linked to the share price. This is common with many large companies, and as someone who has invested in shares, I'm not entirely against it. Companies often act in ways which are detrimental to their staff and customers in order to protect profits. The difference with banks, is that their customers are the millions of Australians who are working hard to pay off their home loans.
The new capital adequacy ratios will make lending less profitable, and we understand there was a need to react. Were the banks correct to pass on this cost to their staff and customers? Could they have taken a more altruistic approach? Do you think share holders would be outraged if a bank announced 'profit growth will not meet expectations because we want to keep Australian mortgage payments low, and avoid cutting jobs'
What are your thoughts, we'd love to hear from you in the comments section below!