Westpac follows NAB in hiking rates

Westpac has followed in NAB’s footsteps and ratcheted up home loan interest rates for owner occupiers and investors.

Westpac CEO Brian Hartzer at a House of Representatives Economics Committee hearing at Parliament House in Canberra earlier this month. (AAP Image/Lukas Coch)

Westpac has hiked mortgage interest rates following the surprise move by rival National Australia Bank, also blaming “increasing” funding costs.

Westpac (WBC), the nation’s second biggest lender, today pushed up owner occupier variable rates 3 basis points to 5.32 per cent for customers paying both principal and interest.

Owner occupiers only paying interest will see their rates rise 8 basis points to 5.49 per cent.

Like NAB, Westpac jacked up rates more severely for property investor customers, rising 23 basis points to 5.79 per cent for principal and interest loans and 28 basis points to 5.96 per cent for landlords only paying off interest costs.

Variable business lending rates will also rise 8 basis points.

“Despite home loan interest rates being at historically low levels, both deposits and wholesale funding of mortgages have increased over the last nine months,” said George Frazis, chief of Westpac’s consumer banking arm.

Mr Frazis said the bank took a “very careful” approach to pricing decisions and had to balance the needs of both owner occupiers and investors, adding customers with interest only loans can move to principal and interest repayments for free until June 17.

The changes come into effect March 24 for Westpac’s mortgage customers and April 3 for businesses.

NAB yesterday lifted variable owner-­occupier rates by seven basis points to 5.32 per cent and investor loans 25 basis points to 5.8 per cent, also effective from March 24, in a move that surprised the industry just one week after the chiefs of the big four banks appeared before a parliamentary inquiry.

Yesterday’s move was the first time a major bank has raised prices for both investors and customers who live in their homes since late 2015, when Westpac led the industry in repricing home loan books following the regulator’s tightening of mortgage capital requirements.

Along with funding costs, banks are blaming the latest hikes on margin pressure from strong competition and having to comply with the banking regulator’s 10 per cent growth cap on investor lending.

According to Macquarie analysis, Westpac had the most to gain from following NAB, given its large investment lending book, the biggest in the industry at $142 billion. It also has $236bn of owner occupier mortgages, according to the banking regulator.

Applying NAB’s price increases, Westpac’s annual earnings would grow 3.7 per cent, ahead of NAB at 3.4 per cent, Commonwealth Bank 3 per cent and ANZ 2.5 per cent, according to Macquarie.

Banking analyst Victor German said while all the banks would probably follow NAB’s lead, the earnings benefit was “not risk free”.

“While banks’ move to increase investor mortgage profitability is positive for earnings in the short term, we recognise that it puts additional pressure on an already highly leveraged household sector,” Macquarie’s Mr German told clients today.

“This, coupled with a rising global rates outlook, suggests the risk around investor portfolios appears to be increasing.”

NAB chief operating officer Antony Cahill yesterday told The Australianthe bank ensured there were clear buffers in place when loans were written to ensure borrowers “should be in a position they can absorb increased repayments” if required.

“Mortgage rates are still at historically low rates,” he said.

“We are comfortable with our credit risk profile of our mortgage book at the moment and certainly with these increased repayments we believe our borrowers will be able to continue to make their repayments.”