CBA and ANZ match RBA’s hike in interest rates

The Commonwealth Bank and ANZ Bank will pass on the full value of the Reserve Bank’s increase in interest rates to mortgage customers as the era of ultra-cheap home loans comes to an end.

CBA on Tuesday night was the first bank to respond to the RBA’s historic lift in the cash rate from 0.1 per cent to 0.35 per cent, while ANZ followed soon after.

CBA is increasing its variable rates by 0.25 percentage points.Credit:Michael Clayton-Jones

As investors bet that banks will benefit from rising rates, CBA said interest rates for both owner-occupiers and investors would increase by 0.25 percentage points, and the changes would take effect from May 20. ANZ is lifting variable home loan rates by the same amount, but its changes take effect earlier, on May 13.

CBA’s group executive for retail banking, Angus Sullivan, acknowledged rate rises would be new to some borrowers and pointed to options including fixed-rate loans.

“This is an important time to support customers as some may not have experienced an interest rate increase since they took out their loans,” Sullivan said.

“We are here to help customers who have loans and are considering how repayments might change. Some options available to help our customers manage repayments include fixing or splitting loans or setting up an offset account.“

CBA’s standard variable rate for owner-occupiers paying principal and interest will increase to 4.8 per cent as a result of the changes.

ANZ’s group executive for Australian retail, Maile Carnegie, highlighted the large number of borrowers who were ahead of their minimum repayments, alongside the very high level of household deposits amassed in recent years.

“While this change will impact customers in different ways, home loan customers are generally well placed to manage rising rates with around 70 per cent of accounts ahead on repayments – many of them by two years or more. Household and business deposits are also at record highs,” Carnegie said.

“However, we know some people are doing it tough and we encourage any ANZ home loan customers facing difficulty to contact us so we can work through a range of support options we have available,” Carnegie said.

Interest rate comparison website RateCity said a 0.25 percentage point increase would lift repayments on a $500,000 loan by about $65 a month, or $130 a month for a $1 million mortgage.

Explaining Tuesday’s rate rise, RBA governor Philip Lowe highlighted the strength in the labour market and argued wage growth was picking up, which made it appropriate to withdraw some of the extraordinary support provided during the pandemic.

Lowe said the RBA expected inflation would hit 6 per cent this year, and there would be more interest rate rises to come. “The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time,” Lowe said.

Over the longer term, Lowe said it was “not unreasonable” to expect the cash rate would increase to 2.5 per cent, which he described as a more normal level for borrowing costs.

Australian bank shares have performed strongly this year amid predictions banks will benefit from rising interest rates by lifting rates on loans by more than they increase rates on their deposits.

At the time of writing National Australia Bank and Westpac had not announced their interest rate changes.

Ratings agency Standard & Poor’s on Tuesday said home loan arrears were likely to drift up from historically low levels following the increase in interest rates, but it did not expect a significant lift in mortgage defaults.

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