Counting the cost of bank rate hikes

While mortgage holders face a hefty slug from bank hikes, a push for customers may mean lower rates for new borrowers.

This couple may be happy with their purchase, but borrowers are set to be paying hundreds of dollars extra a year after the latest rate rise.

Westpac mortgage holders with a mortgage of a million dollars will be forking out an extra $1,044 per year after the nation’s second largest lender lifted rates by 14 basis points.

On average, borrowers with a $500,000 Westpac mortgage, and some mortgage holders with a loan through a Westpac subsidiary, will be paying an extra $516 per year, according to comparison website RateCity.

“Now that Westpac has hiked, taking the brunt of the bad PR, we expect the other three banks to follow suit,” RateCity research director Sally Tindall said.

“Ironically the banks are desperately seeking out customers to boost their lagging profit margins.

“They’re doing this by offering rock bottom rates, but only to new customers, so if you’ve got a bit of equity in your home, now is a great time to consider refinancing.”

Last month, RateCity estimated that mortgage holders with a million-dollar loan across the market would be paying an additional $715 a year on average, as out-of-cycle rate hikes by non-banks and smaller lenders took effect.

RateCity data found that the most common rate rise was 10 basis points since smaller lenders began hiking rates in March.

Today Westpac said it blamed rising funding costs for the rate hike to 5.38 per cent for owner-occupiers with principal and interest loans.

Ms Tindall said Westpac had held out keeping rates steady longer than the market had expected.

“Westpac has today asked their variable rate home loan customers to help ease their cost of funding pressures,” she said.

“While banks are entitled to make a profit, some Westpac home loan customers will be disappointed with the bank’s decision to increase their interest rate.

“Most households will be able to absorb the rate hike, however anyone who is overstretched to get in the market will feel burdened by this extra cost.”

Westpac’s rate changes will come into effect from September 19.

It comes despite the Reserve Bank having kept the official cash rate at a record low 1.50 per cent since 2016.

“If your lender hikes your interest rate, it’s the perfect time to start considering your options,” Ms Tindall said.