ANZ, CBA home loan rates tipped to rise

Customers of Commonwealth Bank and ANZ are facing mortgage rate hikes this week following NAB’s rates move.

Mortgage rates versus RBA cash rate

Customers of two of the nation’s largest lenders, Commonwealth Bank and ANZ, are facing mortgage interest rate hikes this week as National Australia Bank’s surprise repricing of its $275 billion home loan book drives various tactical responses across the industry.

Analysts said ANZ was most likely to raise mortgage rates across the board, given that CBA had already repriced investment and interest-only loans higher this year.

However, CBA has scope to adjust prices for owner-occupiers because it has the lowest advertised variable rates at 5.22 per cent, below the 5.32 per cent being offered by NAB and Westpac.

ANZ’s owner-occupier rate is 5.25 per cent.

In recent years, investment loans across the industry have been priced higher — with NAB last week hiking 25 basis points to 5.8 per cent — as banks try to adhere to the regulator’s growth cap and compensate for greater potential risks in lending to landlords. Roger Montgomery, the founder of Montgomery Investment Management, warned in The Weekend Australian that depressed property yields after years of surging prices were starting to unwind, potentially affecting the entire market — not just apartments.

“Property income yields are at historic lows and yet property buyers couldn’t be more enthusiastic. Buyers who tell me that they don’t mind buying on a yield of 2.5 per cent because they will get a capital gain need to understand that the capital gain will only come when a buyer is willing to accept an even lower yield,” he wrote.

“And yields cannot fall much further when your oversupplied property is vacant and your yield is zero — as many leveraged Brisbane apartment owners are about to discover.”

Preliminary auction clearance rates yesterday showed a jump nationally at the weekend, but also a 20 per cent slump in the number of auctions compared to a year ago. In the hot Sydney market, where house prices have rallied 75 per cent in five years, the clearance rate soared to 83.9 per cent on 962 auctions, down from 1114 a year ago.

While the banks have expressed confidence that higher borrowing costs won’t have an impact on the health of their mortgage books, analysts are concerned about rising risks as interest rates head higher and pull bank funding costs higher.

JPMorgan has forecast that banks could raise investor mortgage rates by up to three percentage points in coming years to offset the looming Basel IV regulatory changes, specifically higher capital requirements for investor loans defined as “materially dependent on property cash flows”.

After NAB increased rates on Thursday, Westpac followed suit on Friday and hiked owner-occupier rates 3 basis points to 5.32 per cent for customers paying principal and interest, and a larger 8 basis points to 5.49 per cent for those only paying interest.

Macquarie analyst Victor German said the moves on “politically sensitive and more contested” owner-occupier loans were more surprising than the moves on investor loans, which banks were more likely to reprice.

Smaller lenders such as Suncorp, Bendigo and Adelaide Bank, ING direct, Macquarie and Bank of Queensland have historically piggybacked on the big four banks’ hikes and repriced their loan books too.

Morgan Stanley analyst Richard Wiles said BoQ had “limited room to further reprice any home loans” due to its prices already being about 40 basis points higher than the big four.
“Bendigo may have some scope to increase investment property loans rates,” he added.

According to a Deutsche Bank analysis, Bendigo is growing investment loans by 12 per cent a year, above the Australian Prudential Regulation Authority’s 10 per cent speed limit.

Mr Wiles added that NAB’s repricing was “necessary” to offset margin pressure in the past half year, when the bank’s home lending margin eased 12 basis points in the second half to 1.28 per cent. However, he said NAB’s higher prices would slow loan growth to below the “system rate”, or the overall market.

“It has repriced principal-and-interest owner-occupier loans by a cumulative 22 basis points since April 2016 versus 11-19 basis points for the other majors. It has also repriced interest-only investor loans by 55 basis points, which is 25-30 basis points more than the others,” he told clients last week.