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Westpac blinks first amid loan funding pressure

Glenn Freeman with AAP  |  30 Aug 2018Text size  Decrease  Increase  |  
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Home housing mortgage

Westpac has become the first of the big four banks to raise interest rates, staging a 14-basis point rise, amid a record period of inertia by the Reserve Bank of Australia.

The rate hike follows a prediction by Morningstar banking analyst David Ellis, who last month suggested Westpac (ASX: WBC), Australia’s largest mortgage lender, would be the first of the big four banks to move.

Ellis suggests Commonwealth Bank (ASX: CBA) is also under intense pressure to lift rates, regardless of the likely public backlash, if short-term money market rates stay at their elevated levels.

Even as higher capital funding costs put lenders under increasing pressure to increase rates, political pressure mounted too as damning findings from the royal commission into banking hurt customer and investor sentiment.

Westpac will raise variable home loan rates by 14 basis points, effective from September 19, citing an increase in its wholesale funding costs.

Westpac's annual variable mortgage rate for owner-occupier properties will increase to 5.38 per cent for customers with principal and interest repayments.

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This rate will increase to 5.93 per cent for residential investment property loans.

The RBA has kept the official cash rate at a record-low of 1.5 per cent, citing tepid inflation.

Some Australian lenders including Macquarie Bank, Bendigo & Adelaide Bank and AMP Bank have raised mortgage rates this year.

Future Fund chairman Peter Costello yesterday alluded to the pressures spurring banks toward out-of-cycle rate rises.

"Australian banks borrow a lot of money offshore and in particular in the US, and US rates are rising, so I think they’ll be looking to increase rates,” Costello, former treasurer, said yesterday.

"It’s important that monetary policy in Australia is still principally mediated by the Reserve Bank of Australia, but given the international pressures, yes, I think they’ll be looking at out-of-cycle rate increases."

Westpac's share price was up 2.8 per cent to $28.90 on early news of the announcement, from yesterday's opening price of $28.11. Ellis puts the bank's fair value estimate at $35.

Shares in other major banks also moved higher, taking the S&P/ASX 200 financials index up 1.5 per cent in Wednesday's afternoon trading.

  

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Glenn Freeman is senior editor, Morningstar Australia

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

. Glenn Freeman is senior editor, Morningstar Australia.

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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