The four big banks announced that they would all pass on the shock 50 basis point increase in the official exchange rate of the Reserve Bank of Australia.
Westpac was the first to act just hours after Tuesday’s decision by the central bank’s board. It was followed late Wednesday by Commonwealth Bank, NAB and ANZ.
The surprise rise in cash rates – from 0.35% to 0.85% – is expected to weigh on household budgets already stretched by sky-high gasoline and grocery prices, and a warning from the World Bank on slowing global growth in an environment of stagflation, where low economic growth is compounded by rising prices.
Westpac said it would increase variable home loan interest rates by 0.50% for new and existing customers starting June 21.
Westpac’s general manager of consumer and business banking, Chris de Bruin, acknowledged that a second rate hike would take as many months to affect budgets differently.
“Our customers have managed their finances carefully during the pandemic, with many putting more funds aside in their savings and clearing accounts,” Mr. de Bruin said.
“This means the majority of our customers are ahead of mortgage payments and have a buffer to help them manage an increase in interest rates.”
Westpac said it would also introduce a term deposit rate of 2.25% per annum for 12 months to help customers save from Thursday. Other interest rates on deposits remain under review.
Macquarie followed Westpac on Wednesday morning, saying it would pass on the full 50 basis point increase to customers with standard variable home loan rates, starting June 17.
The ABC announced the news to its home loan customers via Twitter, with the increase also due to begin on June 17. Its standard variable rate for homeowners paying both principal and interest will be 5.3% after the change, while loans to investors will rise to 5.88%. hundred. Higher rates apply to interest-only loans.
The Bank of Queensland will also pass on the full increase to its new and existing variable rate mortgage holders from June 14.
“We know that many of our customers have prepared for changing market conditions and are on average 15 months ahead of their loan repayments,” said Martine Jager, BoQ Group Director, Retail Banking.
“However, we approach these decisions with great caution and respect that any change in the household budget is difficult for our customers to manage.”
National Australia Bank and ANZ have yet to reveal the extent of their hikes, but most expect them to both implement the same hike.
Banks were all hit hard in a slightly stronger market on Wednesday. Shortly before the close, Westpac was down 6% to a near three-month low of $21.99, NAB fell 4% to $28.88, Commonwealth Bank was down 4.1% at $97.73 and ANZ fell 2.5% to $23.83.
After Tuesday’s 50 basis point rate hike, Canstar says mortgage holders – based on the average variable homeowner’s interest rate of 3.17% – could face the following hikes in monthly repayments :
- Borrowers with a $500,000 home loan can expect to see their monthly repayment increase by $139.
- Borrowers with a Home loan of $750,000 can expect to see their monthly repayment increase by $208.
- Borrowers with a $1,000,000 home loan can expect to see their monthly repayment increase by $278.
The size of the latest official exchange rate surprised many, with economists previously announcing an increase of between 0.25 and 0.4 basis points.
The increase – which marks the first time since 2000 that the RBA raised its cash rate target by more than 25 basis points at a monthly meeting – is expected to squeeze the budgets of many households.
For mortgage holders, it comes as a blow after last month’s rise saw their repayments rise as they also struggled to rein in spending weighed down by soaring inflation that added to the cost of almost everything – from gas and white goods and electronics to shopping per week.
The pain of the official cash rate hike could also be felt by renters, with many investment borrowers willing to pass some of the extra financial stress on to people renting their homes.
“Although the rise in monthly reimbursements this month is relatively moderate, owners should be prepared for significant increases in the months ahead,” said RateCity.com.au research director Sally Tindall.
“These rate hikes are not going to magically cure Australia’s inflation problems. The RBA will need to rise again, potentially as early as next month and from there it could continue to come in big and fast to get inflation under control.
Canstar money expert Effie Zahos said borrowers were facing higher costs from “everywhere” at the moment, leaving “little wiggle room in household budgets”.
“Australians are seeing price increases on several household bills,” she said.
“When you experience higher costs on just about every household bill, juggling the extra costs can become difficult as consumers need to be efficient in redirecting their savings.
“It’s not just homeowners who are making life difficult by repaying more of their loans. Although interest rates do not have a direct impact on rental values, they do have indirect consequences, which could cause rental prices to increase even further.