HOMEOWNERS on an average mortgage will have to shell out an extra $500 a year after Westpac became the first bank in 3½ years to hike interest rates out of step with the Reserve Bank.
The nation’s second-biggest lender, which yesterday revealed a statutory annual net profit of $8 billion, stands to make an extra $1.59 million a day.
Its shock boosting of variable mortgage rates for owner-occupiers by 0.2 percentage points, to 5.68 per cent, would add about $14,000 to an average $300,000, 30-year-loan.
Westpac also upped variable rates for property investors by 0.2 percentage points to 5.95 per cent.
And the grim news for those paying off a mortgage is likely only to worsen; experts say that other banks, complaining of mounting regulatory costs, will follow suit soon.
Analysts have also speculated the move could trigger a Reserve Bank interest rate cut as early as next month to spark greater consumer spending.
AMP chief economist Shane Oliver said other lenders were under the same pressure as Westpac.
“It’s a blow to the 30 to 40 per cent of Australian households who have a mortgage on their homes and therefore it will be a hit to spending,” he told Bloomberg.
“If the Reserve Bank is to offset this and the flow on to household budgets and consumer spending, then they really have to move in the November meeting.
Despite low interest rates, mortgage stress is already hitting home in Victoria. The Herald Sun can reveal hundreds of properties are being seized.
Foreclosure actions by major banks and lenders repossessing homes, units, businesses and land have resulted in 1749 Victorians losing an asset since July last year, according to Supreme Court data.
Westpac boss Brian Hartzer blames new regulatory rules for the rise.Source:News Corp Australia
The most recent statistics show 96 repossessions in September, when the Reserve Bank was holding interest rates steady at 2 per cent.
Foreclosure experts warned that these figures were showing that people had taken on unsustainable debt, and that yet more Victorians faced losing their houses as rates rose.
Westpac boss Brian Hartzer blamed new regulatory rules, which he said meant his bank had to stash about $6 billion more in its coffers by the beginning of next financial year.
The Australian Prudential Regulatory Authority has said it wants banks to have “unquestionably strong” capital reserves so as to create financial buffers in case of another global financial crisis.
Mr Hartzer turned to shareholders to raise $3.5 billion through a share entitlement offer, but said he had to strike the right balance between investors and consumers sharing the burden; Westpac has about 600,000 “mum-and-dad” retail shareholders nationwide.
“The reality is the regulations have increased the amount of capital we have to hold by 50 per cent — that is an extra $6 billion,” he said.
Westpac customers Simon and Chantelle Bond, with daughter Amelia, will feel the rate rise pinch.Source:News Corp Australia
Big pay packets, bigger profits.Source:Herald Sun
Mr Hartzer said the rates boost had been a “difficult decision” that he “did not take lightly”, but for an average mortgage holder, it equated to under $10 a week.
“I felt that, though we will wear pain in public, it was nevertheless the right thing to do. We understand the impact on customers, and it is not a decision I’ve enjoyed making.”
No bank since the ANZ in April 2012 has raised interest rates without the RBA’s having done so.
“The biggest concern is that (it) could open the floodgates for the other big banks and the rest of the home loan market to follow,” said Michelle Hutchison, of comparison site Finder.
“So we’re expecting to see more variable home loans rise in the coming months.”
Tom Godfrey, of consumer advocate Choice, said the big four banks were cashed up after years of record profits, and “to now turn around and suggest that all consumers need to pay more for a mortgage is shocking. (It) points to an appalling lack of competition in the banking sector”.
Westpac has about a quarter of the owner-occupier home loan market; the big four hold about 80 per cent.
The Westpac rate hikes take effect on November 20.
Shareholders come first
FOR the past few months the Bonds have excitedly watched their dream home being built in Werribee.
And with two weeks until they exit the inner-city rental realm and move into their slice of paradise, a rate rise is the last thing they wanted.
The Bonds have just taken out a housing loan with Westpac.Source:News Corp Australia
Simon and Chantelle Bond are among hundreds of homeowners who will be hit by Westpac’s shock announcement to hike rates out of the Reserve Bank cycle.
After shopping around for the best value for money mortgage, they signed up to the variable rate Rocket Repay Home Loan with the bank just months ago.
Mr Bond, 35, accused Westpac of looking after shareholders over customers.
“This appears to be another case of shareholder profits having more influence over the bank’s actions than customers,” Mr Bond said.
“My understanding is that this is in response to the Government requiring banks to hold more capital for money loaned.
“I am guessing this is in response to housing issues in places like the US that involved a lot of toxic debt and trying to prevent such an outcome here.”
But Mr Bond said they were well prepared, having factored in rate rises in the family budget.
“Not specifically for this reason that rates would rise but because rates do rise,” he said, stating that they wouldn’t consider fixing their home loan just yet.
Originally published as Rivals tipped to follow Westpac’s lead