NAB, Westpac raise interest rates for property investors

National Australia Bank has hiked interest rates for property investors, the latest in a series of recent pricing increases by major lenders to offset pressure on profits.

NAB (NAB), the third biggest home lender by market share, today said variable rates for new and existing investors would rise by 15 basis points, effective Monday December 12, increasing the cost to 5.55 per cent. In contrast, owner-occupiers will continue to pay 5.25 per cent.

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Westpac today also raised interest-only rates for investors and owner-occupiers by 8 basis points, citing the need to maintain “prudent lending practices”.

NAB chief operating officer Antony Cahill said the bank didn’t make the decision “lightly”, having to balance the needs of customers and shareholders in an “increasingly challenging environment”.

“A low-rate environment poses considerable challenges to all lenders, and we must respond to what is happening in the economy and the market,” he said.

The repricing of rates for existing customers will boost profits from NAB’s $100 billion of investment loans on its books. The bank also has $135bn of mortgages to owner-occupiers, according to the regulator’s most recent data.

It marks the biggest rate repricing by the big banks since holding back half the August cash rate cut. It also follows the industry’s hiking of investor loans mid-last year in an attempt to comply with the regulator’s cap on lending to landlords.

While the 10 per cent annual growth cap worked to slow lending to investors, demand has been recently picking up again. According to the Reserve Bank, system-wide annual investor credit growth bottomed at a seven year low of 4.6 per cent in August, before steadily rising to 5.3 per cent in October.

NAB’s move comes ahead of the RBA’s final board meeting of the year tomorrow, which is widely expected to result in the official cash rate being held at 1.5 per cent.

Despite the cash rate being on hold since August and greater political scrutiny on the industry, banks have recently been raising various home loan products to offset rising funding costs, slowing credit growth, hot competition and regulatory changes.

Last week, Commonwealth Bank raised a range of fixed mortgage rates, following similar moves by Westpac. NAB’s online subsidiary UBank also lifted variable home loan rates by 10 basis points, while junior lender ME also raised rates for new customers by up to 15 basis points.

Martin Crabb, head of research at broker Shaw and Partners, told clients today it wasn’t surprising banks were hiking fixed rates.

“Funding costs are soaring,” he said.

Mr Cahill said the banks’ recently reported lower net interest margins “particularly in home lending, and they remain under pressure”. He said the bank took account of a range of factors, when adjusting rates including being required to have more “stable” funding such as deposits, elevated overall funding costs, regulatory requirements and the “competitive pressures at play”.

The big four banks’ combined profits eased 2.5 per cent last year to $29.6bn. Profitability metrics — such as return on equity and net interest margins — also decreased.

“We will continue to regularly review our products and pricing, and make decisions that enable us to achieve a balance for all stakeholders – borrowers wanting to buy a home or grow their business, depositors and investors seeking a return on their investment, and our shareholders who rely on our dividends,” said Mr Cahill.

Westpac chief of consumer banking, George Frazis, said standard principal and interest mortgages were priced at a lower interest rate because they encouraged customers to pay down the loans, reducing the bank’s capital requirements.

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“We believe it is necessary to slightly increase the price differential between interest-only and principal and interest home loans. We are encouraging customers, where appropriate, to move to the lower principal and interest home loan at no additional cost until March 31,” he said.

Article By: Michael Bennet / Reporter

Source: http://www.theaustralian.com.au/business/financial-services/

Author: johnsonhung

Property Investment Consultant / Finance Referral (Home Loan) / Lawyer Referral (Any Legal Requirement) / PR for Australia / Real Estate Professional / Coronis Realty (International Department) / Development Adviser / Construction Builder Referral

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