With almost 80% of Australian Home Loans owned by the Big Four Banks, we explain the recent interest rate changes, investigate the impacts and guide you through the next steps.
WHAT ARE THE INTEREST RATE CHANGES?
In an unusual turn of events, the big 4 banks all made interest rate increases outside of the Reserve Bank of Australia’s (RBA) cash rate announcement. Westpac lead the charge, making the first and highest interest rate increase announcement with ANZ being the last of the big four banks to follow.
The increases relate to variable rates only and will be applied to all new and existing Home Loans, fixed rates remain untouched at this point. These changes are significant but it’s always important to see the comparison rate as this highlights a more accurate interest rate, rather than a ‘from price’.
WHY WERE THE INTEREST RATE CHANGES MADE?
Many were left wondering why the rate increases were made, especially in such a competitive market space. NAB said that the increase “responds to market conditions, as well as regulatory changes that require the bank to increase the amount of capital applied to residential mortgages” and that the regulatory changes “increase the costs associated with providing home loans”. CBA Group Executive for Retail Banking Services, Matt Comyn, said that “CBA is supportive of an Australian financial system that is strong, stable and competitive.”
All banks expressed that the decision to pass on these increases was difficult with Westpac Chief Executive George Frazis saying “we acknowledge that it does impact customers, even in an environment where interest rates remain near historic lows.” He also stated that “more than 70 per cent of Westpac customers are ahead on their home loan repayments” while NAB mentioned that they need to balance the interests of their customers with the needs of their shareholders.
WHAT DOES THIS MEAN TO MY HOME LOAN?
If you have a Variable Owner-occupied Home Loan with ANZ, Commonwealth Bank, NAB or Westpac, you will see an increase in your Home Loan repayment in November, due to the interest rate increase. Keep in mind that St. George Bank, Bank of Melbourne and Bankwest are all also owned by the big four banks and therefore could also incur rate changes.
If you have a Fixed Rate Home Loan, you will not be effected by these changes, unless your fixed term has expired and your Home Loan reverts back to a variable loan.
WHAT SHOULD I DO?
The first step is to check that your Home Loan is working for you. Ideally, it's best to change your Home Loan product every 2 years to seek the most suitable option for your lifestyle. A small difference in interest rates can mean a huge difference in the way that your Home Loan performs and how you need to treat it to get the biggest benefit.
You also need to be aware of the comparison rate on the loan as this is the true fee payable throughout the loan. Benefits such as redraw facilities, 100% offset accounts or the ability to make extra repayments are not always included, although these can make a big difference when assessing the suitability of a Home Loan. Additional features that you may want your Home Loan to include could bump this rate up.
Consider fixing all or part of your Home Loan. Variable loans fluctuate while fixed loans can provide comfort in knowing your exact repayments. Financial circumstances vary, for further information see our Fived vs. Variable chart.
Talk to your Home Loan Specialist who can offer you a spread of possibilities. There are many options, if you’re not happy with your current bank or lender, now is a good time to make a change. At Let’s Finance, we compare over 30 lenders and more than 800 financial products so if your Home Loan isn’t working to the best of its ability, we can help you move on.
I DON'T HAVE A HOME LOAN YET, SHOULD I APPLY OR WAIT?
You shouldn't be deterred by the interest rate changes. Home Loan interest rates are sitting at the lowest they have ever been. It’s best to speak with a Home Loan Specialist to determine a comfortable borrowing amount for your circumstances so that you can get into your very own home sooner.
For more information or to book an appointment with a Let’s Finance Home Loan Specialist, call 9315 8888 or contact us now.
Rates are subject to change and are correct at the time of publishing. This is a general information guide only and does not take individual financial circumstances into account and therefore must not be relied upon. Please consult your Home Loan Specialist for advice specific to your circumstances.