ANZ and NAB will increase their standard variable rates. They join Westpac and Commonwealth Bank, who have made similar announcements in the past week. ANZ will lift their variable rate by 0.18% and NAB will lift theirs by 0.17%. The rate hike will hit ANZ customers on November 20th, and NAB customers on November 12th
All four banks are saying that they need to increase their variable rates, at a time when the RBA rate is on hold, because of the regulatory changes announced by APRA in July. From July 2016, banks using the Internal Ratings Based (IRB) system for credit risk management, will have to increase their capital adequacy requirements. Only the Big Four and Macquarie Bank use the IRB system in Australia. This rate hike by the big four is addition to the changes in investment lending, which swept through the mortgage market in August.
If you have a variable mortgage with one of the big four, then your interest rates will go up by the end of November. How much more interest you are charged on your home loan, depends on the size of your mortgage, and which lender you are with. The table below outlines how much the increase will cost per year:
For every $100,000 you owe on your home loan, you will pay between $150 and $200 per year in extra interest, unless you refinance your mortgage to either a new lender or a fixed rate. There are better deals available but there is no guarantee that other lenders will not increase their variable rates in the future.
Many in the market believe that the rate hike by the big four, clears the way for the RBA to cut the official cash rate for a third time. This would drop the official rate below it's current historic low of 2.0%. The increased expectation of a rate cut has caused the Australian Dollar to fall in recent days, as shown below:
We expect that getting a home loan in Australia will continue to get more difficult. APRA, ASIC and the RBA have joined forces to become the 'Council of Financial Regulators'. Together, they want to reduce the risks they see in the Australian home loan market. They have stated that they want to address:
Higher risk mortgage lending - Which includes high loan to value ratio loans, interest only loans, and high loan to income mortgages.
Growth in investment mortgages - APRA wants to limit growth of investment mortgages to 10% per annum. A growth rate above 10% would increase the risk factor
Loan affordability tests - When banks assess how much new borrowers can afford, APRA wants them to use a minimum buffer of either 7% or 2% above the rate of the mortgage they are applying for. This means if you are applying for a new home loan with a rate of 4.5%, the bank will test your ability to make repayments at 7%
What Do You Think?
We'd love to hear from you in the comments section below. Do you think the RBA will cut the cash rate again? What changes do you think are next for the mortgage market?