Westpac home loan rates: We did the right thing by hiking, CEO says
WESTPAC “agonises” over its home loan interest rates and did the “responsible thing” by hiking them without a cue from the Reserve Bank, the group’s chief says.
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WESTPAC chief Brian Hartzer has defended hiking home loan interest rates as “the responsible thing to do” given the rising funding pressures the bank is facing.
The chief of the nation’s second biggest lender says the decision to lift variable rates by 0.14 percentage points was not taken lightly but was necessary to balance the interests of all the bank’s stakeholders.
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“We agonise over this, but the cost of funding has gone up considerably,” Mr Hartzer told the Herald Sun.
“We have been wearing that … a part of our job is to recognise higher funding costs.”
Westpac today became the first of the big four banks to jack up its home loan rates this year, firing the starting gun on a round of hikes that will hit the hip pockets of millions of Australians with mortgages.
The bank announced it would lift interest rates on all variable home loans on September 19.
Shares in the big four banks — Westpac, Commonwealth Bank, ANZ and National Australia Bank — all spiked following’s Westpac’s announcement.
The Reserve Bank has kept the nation’s official cash rate at an all-time low of 1.5 per cent since 2016 and signalled it will be on hold for some time.
Mr Hartzer said it was important to remember banks did not source all their funding from Australia and credit from overseas was becoming more expensive as interest rates rose globally.
The bank bill swap rate — a key interest rate that reflects wholesale funding costs — increased by 0.25 percentage points between February and March this year and remained elevated, he said.
“We have come to the conclusion this is a permanent phenomenon, or at least it will persist for a while.”
Higher rates were needed for the long-term stability of the bank’s financial position, Mr Hartzer said. “(It’s) the responsible thing to do.”
Owner-occupiers and investors with variable rates will all be slugged by Westpac, whether they pay principal and interest or interest only. The increase will take effect on September 19 and add a $26 a month to a $300,000, 30-year loan.
Westpac subsidiary St George will also increase its variable rates by 0.14 percentage points.
Based on previous “out-of-cycle” rate hikes — those made without the RBA moving the nation’s cash rate — other major banks are all but certain to follow Westpac’s lead.
The lift in interest rates comes as home prices in Melbourne and Sydney fall away from record highs.
Mr Hartzer said the housing market would remain fundamentally solid in the wake of Westpac’s move.
“There is nothing too challenging in the fundamentals of the housing market,” he said.
“We have seen a slowdown in demand for investors, but we still think the market still remains pretty solid.
“(Home loan) rates have come down dramatically in the last couple of years.
“And even after this change of an increase of 14 basis points it will be 10 basis points (0.1 percentage points) lower than the equivalent rate three years ago.”
The move by Westpac came only hours after Future Fund chair and former federal treasurer Peter Costello said households should brace for home loan rate hikes at the big four banks as their sources of international funding became more expensive.
He added households would be well advised to exercise “a bit of prudence” with their finances given rates globally were rising.
“You have got to remember the Australian banks borrow a lot of money offshore, particularly in the US, and US rates are rising,” Mr Costello said.
“It’s important that monetary policy in Australia is still principally mediated by the Reserve Bank of Australia but given the international pressures, yes, I think they will be looking for out-of-cycle rate increases”.
Westpac shares rallied 2.7 per cent, or 77c, today to $28.88.
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