The big four move swiftly on mortgage rates but show less enthusiasm for savings accounts

All four of the country’s largest lenders will pass on the December increase in full. But when it came to savings accounts were less enthusiastic.

The big four banks moved in unison to pass on the Reserve Bank‘s December rate hike in full to borrowers, but they stopped short of announcing sweeping changes to deposit and savings rates to blunt the sting.

On Tuesday afternoon, Westpac was first out of the blocks to announce a lift in variable interest rates by 25 basis points per annum for new and existing mortgage customers, effective December 20. NAB and ANZ were quick to follow and then Commonwealth Bank rounded out the group late on Tuesday, with the trio separately raising variable rates from December 16.

Westpac and CBA also announced limited changes to savings and deposit rates, while NAB and ANZ said their pricing in that area was under review.

But as banks brace for higher levels of stress and loan losses across their portfolios, the majors all urged borrowers feeling the pinch to reach out to their respective lender.

The RBA on Tuesday delivered borrowers another hit to their bottom lines, marking its eighth successive monthly hike in the cash rate since May. After its policy setting meeting the central bank increased the official rate by 25 basis points to a decade-high rate of 3.1 per cent.

RateCity analysis showed if lenders passed on the latest hike, repayments by the average owner-occupier with a $500,000 loan and 25 years remaining on their home loan, would rise by about $75 per month. Given that the RBA has lifted rates by 300 basis points this year, someone with that sized mortgage will have navigated an $834 monthly jump in loan repayments.

RateCity research director Sally Tindall noted borrowers who had taken out home loans in more recent times were coming up against the buffers that banks assessed their ability to repay against.

RateCity research director Sally Tindall. Picture: Tim Hunter.

“In November last year, APRA (Australian Prudential Regulation Authority) told the banks to start stress testing people’s loan applications to make sure they could still meet their repayments if rates rose by 3 percentage points. Just over a year later, we’re already at this level with more hikes still to come,” she said.

Last month, CBA chief executive Matt Comyn tipped the June quarter next year would provide a clearer reading on how aggressive rate tightening was hitting households and businesses.

“We do think there’ll be some more pressure being felt across the economy probably toward the end of our financial year,” he said at the time.

The sharp rate hiking cycle in 2022 is coupled with sharp prices rises across the economy, and the RBA is seeking to cool inflation with its policy actions.

Commonwealth Bank chief executive Matt Comyn.

It wasn’t only banks moving on rates on Tuesday. Non-bank lender Athena informed mortgage brokers it would raise its variable home loan rates in line with the central bank’s move, effective December 8.

RBA governor Philip Lowe said in the central bank’s statement the board recognised there was a lag, as rate rises filtered through to borrowers and the economy.

“The full effect of the increase in interest rates is yet to be felt in mortgage payments. Household spending is expected to slow over the period ahead,” he said.

Given the major banks mirrored the RBA’s move on rate rises for variable mortgages, the competitive jostling will play out in deposit and savings rate pricing.

Westpac announced changes to just two of its savings accounts on Tuesday, despite passing on the full rate hike to all mortgage borrowers. CBA raised its NetBank saver rate by 25 basis points to 1.6 per cent per annum with the introductory rate lifting by the same amount to 3.75 per cent.

The bank also lifted rates on two other savings products by up to 60 basis points.

NAB and ANZ said their respective deposit and savings rates were under review, but shied away from announcing any immediate changes.

Reserve Bank governor Dr Philip Lowe. Picture: Gary Ramage

The Westpac Spend&Save offer – for 18 to 29 year olds – will see eligible customers earn a total variable rate of 4.35 per cent per annum, an increase of 0.35 percentage points, the bank said.

It also outlined its Westpac Life total variable rate with bonus interest increases by 0.25 percentage points to 3.75 per cent.

Dr Lowe flagged on Tuesday the RBA expected to lift rates further, although said it was not “on a pre-set course”.

“It is closely monitoring the global economy, household spending and wage and price-setting behaviour. The size and timing of future interest rate increases will continue to be determined by the incoming data and the board’s assessment of the outlook for inflation and the labour market. The board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that,” he said.

Moody’s Analytics economist Harry Murphy Cruise noted the RBA had “a lot to juggle” at its December meeting as the jobs market had tightened further, wage growth was the fastest since 2012, while the latest monthly inflation reading had eased.

“With inflation still much higher than desirable, a further rate hike in the first quarter is surer than Santa’s arrival in 19 days’ time,” he said on Tuesday.

“We anticipate interest rates to stay at a peak of 3.35 per cent through 2023, helping to gradually unwind current price pressures.

“As inflation returns to the RBA’s target band of 2 per cent to 3 per cent in 2024, businesses and households will be in for a well-deserved reprieve as the board cuts rates from their contractionary levels.”