NAB, CBA, ANZ, Westpac hike mortgage rates; economists warn RBA hike to hit house prices

Economists are warning of more mortgage stress and house price falls as a consequence of the cash rate rise.

Housing watchers are warning of more mortgage stress and house price pressure as a consequence of the cash rate rise. Picture: NCA NewsWire / John Gass

All four major banks have lifted mortgage rates hot on the heels of the Reserve Bank’s cash rate hike.

NAB announced its decision on Wednesday to pass on the full 25 basis points rate hike to borrowers, following similar moves by rivals Commonwealth Bank, ANZ and Westpac on Tuesday.

Their decisions come as economists warn the RBA’s hike is likely to flow through to higher mortgage arrears and moderate house price growth as borrowers face rising costs.

Banking giant NAB’s standard variable home loan will be up 0.25 per cent to 4.77 per cent from May 13, while its reward saver bonus rate will also increase by 0.25 per cent.

NAB group executive personal banking Rachel Slade said the decision reflected the impacts of the domestic and global environment, including changes to official cash rates.

“Supporting customers through the change is a priority for NAB. Interest rates have been very low for a long time – it has been 11 years since the official cash rate in Australia last increased and we know this will be a new experience for some customers,” Ms Slade says.

“We will look after our customers if they find changes to interest rates challenging.”

Commonwealth Bank was first off the ranks, in a move that will see standard variable rates for owner occupiers paying principal and interest lift to 4.8 per cent per annum, from May 20.

Investors paying principal and interest will be charged 5.38 per cent.

Interest only payments will rise to 5.29 per cent for owner occupiers, and 5.64 per cent for investors.

CBA group executive for retail banking, Angus Sullivan, said it was “an important time to support customers as some may not have experienced an interest-rate increase since they took out their loans”.

“Some options available to help our customers manage repayments include fixing or splitting loans or setting up an offset account,” he said.

Meanwhile ANZ’s move, effective from May 13, will take the standard variable rate for owner occupiers paying principal and interest to 4.64 per cent, with interest only payments at 4.94 per cent.

ANZ group executive retail Maile Carnegie said the bank considered “various factors including the change in the official cash rate, along with the impact on our customers and our business performance.

“While this change will impact customers in different ways, home loan customers are generally well placed to manage rising rates with around 70 per cent of accounts ahead on repayments – many of them by two years or more. Household and business deposits are also at record highs,” she said.

“However, we know some people are doing it tough and we encourage any ANZ home loan customers facing difficulty to contact us so we can work through a range of support options we have available.”

Westpac announced an increase in rates for several consumer deposit accounts.

From May 17, the bank will lift rates for all mortgage products by 25 bps, for new and existing customers.

It will also pay out a 25 bps higher rate of interest on its “Westpac Life”, “Westpac 55+” and “Retired” deposit accounts.

Westpac chief executive Consumer and Business Banking Chris de Bruin said: “We know many of our customers were able to build-up their savings during the pandemic and 70 per cent of home loan customers are ahead on their repayments, helping put them in a better position to withstand an interest rate rise.

“We know that some home loan customers may still experience difficulty and we encourage these customers to call us as soon as possible, so our specialist customer teams can work with them to tailor a financial solution.”

Ratings agency S&P Global is forecasting a lift in home loan arrears as the move to lift the cash rate from historical lows hits marginal borrowers.

The agency said the Reserve Bank of Australia’s move will see a “fairly rapid” flow on as many borrowers are sitting on variable rate mortgages.

However, S&P notes arrears were already on the march before the rate rise.

The Standard & Poor’s Performance Index found nonconforming arrears lifted in January topping 2.54 per cent from 2.32 per cent in December.

The ratings agency noted rising nonconforming arrears were frontrunners for mortgage delinquencies.

S&P analysts Erin Kitson and Kate Thomson warned the higher repayments would flow through to consumer spending as borrower’s “reprioritise their spending commitments”.

“Rising inflationary pressures, combined with higher interest rates, will have a flow-on effect on prepayment behaviour; borrowers will be less likely to make additional repayments in such an environment,” Ms Kitson and Ms Thomson said.

Housing watchers are tipping “downwards” pressure on house prices as a consequence of interest rate rises.

This comes after two years of rapidly rising house prices, driven by record low rates, which has seen national housing values lift by 27 per cent between November 2020 and April 2022.

CoreLogic research director Tim Lawless said the rate rise would drive a further deflating of property prices, which in Sydney and Melbourne have already turned south.

The latest CoreLogic data shows Sydney property prices have fallen for three months running, down 0.2 per cent in April.

“Higher interest rates are set to add to the downwards pressure on housing growth rates, which were already losing steam or, as in the case of Sydney and Melbourne, trending into negative territory due to factors including affordability constraints, higher fixed term mortgage rates and lower levels of consumer sentiment,” Mr Lawless said.

“As the cash rate normalises, we can expect housing markets to lose further momentum.”

Mr Lawless said many borrowers were well placed to weather higher rates by being well ahead on their loans.

“Mortgage distress should also be minimised to some extent by mortgage serviceability assessments at the time of the loan origination,” he said.

“Borrowers should be able to accommodate higher mortgage repayments costs, although such a rapid rate of inflation could create some challenges for borrowers with thinly stretched budgets.”

Comparison site RateCity branded the cash rate rise as the “end of an era”, noting Tuesday’s change was likely to “keep moving in the coming months”.

RateCity research director Sally Tindall said while cash rates were at historic lows “there were plenty more rate hikes around the corner”.

“Money is going to start to get more expensive to borrow, and quickly,” she said.

“We expect the majority of banks will pass on today’s hike to borrowers in full, however, some lenders may opt to keep some of their lowest rates on the table for new customers.”

Originally published as NAB, CBA, ANZ, Westpac hike mortgage rates; economists warn RBA hike to hit house prices