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CBA responds to RBA interest rate hike, ANZ, NAB, Westpac stay silent

CBA responds to RBA interest rate hike, ANZ, NAB, Westpac stay silent

Australia’s largest bank has finally responded to the interest rate rise two days after it was initially announced.

On Thursday morning, the Commonwealth Bank of Australia revealed it will pass the full cost of the rate hike onto customers.

The Reserve Bank of Australia (RBA) hiked interest rates on Tuesday for the fourth consecutive month.

Australia’s central bank increased the interest rate by 50 basis points, or by 0.5 per cent, bringing the cash rate from 1.35 per cent to 1.85 per cent, largely in line with economist’s predictions.

Up until now Australia’s biggest four banks — The Commonwealth Bank (CBA), ANZ, NAB and Westpac — hadn’t made any changes in response to the latest rate hike.

But just before 10am, the CBA said variable home loans would increase by 0.5 per cent per year from August 12 while term deposits would kick in with the higher return from August 8.

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The CBA’s variable mortgages as well as term deposit accounts and its NetBank Saver accounts will be impacted by the change.

Owner occupiers and investors on variable rate home loans will have to fork out an extra 0.5 per cent in interest every year.

Term deposits and CBA’s savings account will also increase by 0.5 per cent/

The new term deposit rate will be available from 8 August, while the new NetBank Saver rate will take effect on August 12 along with home loans.

Group Executive, Retail Banking, Angus Sullivan, said: “We have been helping customers understand the changing rate environment and consider what it means for them, and we will continue to be there for them.”

Since May, the cash rate has risen by 1.75 percentage points, after four months of back-to-back increases by the central bank.

However, the CBA is so far the only one of the big players to respond, and that was nearly 48 hours later.

In stark contrast, within hours of the announcement, a smaller bank, Macquarie Bank passed on the rate rise almost straight away.

Macquarie Bank was the first bank to say it would increase variable mortgage rates by 0.5 per cent by August 12.

Rates on its savings and everyday transaction accounts also increased by 0.50 per cent.

The move impacts the estimated 2 million people who are customers of Macquarie Bank.

However, CBA, ANZ, NAB and Westpac have between 8.5 million to 17 million customers each, according to Statista.

Last month, Westpac gave customers the most amount of time to prepare for a change in its variable mortgages and also its savings rates, taking two weeks for the change to come into effect – although it announced the change within 24 hours.

The other three banks passed the change onto customers within 10 days after a swift response.

The August hike isn’t expected to be the last, with economists forecasting that interest rates could peak up to two per cent by the end of the year.

Tuesday’s rate rise means those paying off the average home loan of $500,000 will need to cough up an extra $140 a month.

Tuesday’s decision marks the first time the RBA has lifted the rates for four months in a row since the introduction of the two to three per cent inflation target in 1990 in a sign of the inflation and cost of living crisis across the country.

This follows last week’s increase in annual inflation, which hit 6.1 per cent, which was its highest level in 21 years since 2001.

Tuesday’s rate rise means those paying off the average home loan of $500,000 will need to cough up an extra $140 a month.

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Business

Melbourne single mum struggling to pay extra $360 a month after RBA interest hike

Melbourne single mum struggling to pay extra $360 a month after RBA interest hike

A single mum’s “dream” of becoming a homeowner has become more like a nightmare as she struggles to survive amid the rising cost of living.

Jodi Cameron, 40, from Melbourne, currently has nothing in her bank account after building her house cost more than expected. She can’t even afford to complete the house, with her driveway unfinished because she ran out of cash.

On Tuesday afternoon, she was hit with more bad news; the Reserve Bank of Australia had increased interest rates again, for the fourth month in a row.

It means the single mum, with two daughters aged four and eight, must now fork out an extra $140 every month to pay back her mortgage.

In total, since the central bank started increasing interest rates in May, the family is now paying back an extra $360 a month — money it desperately needs.

“It’s just horrible,” Ms Cameron told news.com.au.

“I do find myself in a situation where paying rent and a mortgage and daycare fees, there’s nothing left.”

Currently, her savings account stands at $0, she said.

The mum worked throughout the Covid pandemic as a disability support worker and blames her current predicament on one thing — missing out on a government grant.

She had factored in receiving a $15,000 grant to help her build her own home but missed out, leaving her financially wrecked.

“I just wanted to own my own home,” Ms Cameron explained.

“It’s just disgusting, it’s so frustrating, I work my guts out, all I wanted was the great Australian dream.”

Her variable interest rate has gone up from 2.79 per cent to 4.5 per cent in the past three months, and is set to go up even further after the rate hike on Tuesday.

“I’m not on a fixed mortgage, I don’t know how I’m going to do it,” Ms Cameron said.

“I’m probably going to have to pull my [youngest] daughter out of daycare because I can’t afford daycare. That also means, how am I meant to work from home with a child?”

As a single mum with no family to fall back on, Ms Cameron had resigned herself to renting but in 2020, she was given hope that she might be able to break into the property market.

The federal government announced the HomeBuilder grant scheme in a bid to increase the disruption to the economy and the building sector during Covids, where eligible homeowners received $15,000 to form part of the payment for a building project for their primary residence.

Ms Cameron met all the criteria for the grant so bought a $263,000 block of land in Lang Lang, a regional town southeast of Melbourne, in August 2020 in the hopes of setting herself up financially for the future.

“I got on the low deposit scheme, I didn’t need a massive deposit,” she explained.

Then in March the following year, she signed a build contract which cost $300,000 for a four-bedroom, two-bathroom home.

She only needed a 5 per cent down payment for the land and the build contracts and was expecting the extra $15,000 from the grant to provide a helpful buffer to afford the progress payments.

But then she logged back onto the HomeBuilder online portal and was devastated to discover she had missed a key due date — which her broker and bank had never mentioned to her.

“I missed a portal cut off date that was never shown or advertised anywhere,” Ms Cameron lamented.

As a result, she was not able to be part of the scheme.

Near the end of her build, the mum ran out of funds and couldn’t afford to pay for a driveway.

“I’ve got no driveway, it’s just mud, I can’t afford it, it’s not nice to have that money you relied on ripped away from you,” she added.

“I owe the real estate the last month’s rent which I can’t pay.

“I assumed I would have this $15,000 to help me out, I don’t have it. This grant meant a lot.”

The mum is now waiting with bated breath as the Reserve Bank is expected to keep hiking interest rates till the end of the year.

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Australia

Interest rates: RBA raises cash rate by 50 basis points to 1.85 per cent

Interest rates: RBA raises cash rate by 50 basis points to 1.85 per cent

For the fourth consecutive month the Reserve Bank of Australia (RBA) has hiked interest rates as inflation runs rampant.

At 2.30pm during the RBA’s monthly meeting, it increased Australia’s interest rate by 50 basis points, or by 0.5 per cent.

The decision brought the cash rate from 1.35 per cent to 1.85 per cent, largely in line with economist’s predictions.

This marks the first time the RBA has lifted the rates for four months in a row since the introduction of the two to three per cent inflation target in 1990.

This follows last week’s increase in annual inflation, which hit 6.1 per cent, which was its highest level in 21 years since 2001.

Tuesday’s rate rise means those paying off the average home loan of $500,000 will need to cough up an extra $140 a month.

And the August hike isn’t expected to be the last, with economists forecasting that interest rates could peak up to two per cent by the end of the year.

As soon as news of the interest rate rise broke, Treasurer Jim Chalmers weighed in and acknowledged it was a tough time for Australian borrowers, saying the announcement would “sting”.

“It’s another difficult day for Australian homeowners with a mortgage,” he said.

“The independent ReserveBank has just announced its decision to increase interest rates by another 0.5 per cent, bringing the cash rate to 1.85 per cent.

“Australians knew this was coming, but it won’t make it any easier for them to handle.

This cycle of interest rate rises began before the election in response to inflationary pressures that began accelerating at the beginning of this year.

“Average homeowners with a $330,000 outstanding balance will have to find about $90 a month more for repayments as a consequence of this decision today, on top of around $220 extra in repayments since early May.

“For Australians with a $500,000 mortgage, it’s about an extra $140 a month, in addition to the extra $335 they’ve had to find since early May.

“As I said, Mr Speaker, this decision doesn’t come as a surprise. It’s not a shock to anybody, but it will still sting.

“Families will now have to make more hard decisions about how to balance the household budget in the face of other pressures like higher grocery prices and higher power prices and the costs of other essentials.”

‘Misleading’: Calls for bank boss to resign

Ahead of the interest rate rise, there were growing calls for the RBA’s board and its governor, Philip Lowe, to resign after a series of missteps.

Chief among them was the promise that interest rates wouldn’t rise until 2024 which one top economist said was “misleading” for borrowers.

Critics also pointed out that the rapid rate rises could inadvertently lead to a recession while at the same time inflation is running rampant.

Warren Hogan, chief economist at both ANZ and Credit Suisse, told The Daily Telegraph that the RBA was guilty of some “pretty bad errors” in recent months.

The RBA lowered the cash rate to 0.1 per cent at the end of 2020 amid the Covid-19 pandemic – the lowest it had ever been – and throughout the pandemic said they didn’t plan on raising the cash rates until 2024.

When it lifted the cash rate for the first time in May and then every month since, Mr Hogan said it was “misleading people, basically”.

He also said Australia’s central bank had taken on risky strategies including spending lots on insurance and sinking funds into a bonds program which had not paid off.

Mr Hogan, who was also the former principal adviser to federal treasury, said: “It’s unforgivable. I think they should resign – the whole board.”

Mr Lowe “should have the character to stand down,” Mr Hogan added.

RELATED: Find out how much the rate rise will cost you

Mr Lowe said the cash rate would remain at its record low of 0.1 per cent until at least 2024, but the rapid rise in inflation this year – caused in part by Russia’s war in Ukraine and supply chain issues on home soil – prompted the monthly hikes .

It comes as Australia’s cost of living crisis is worsening, making borrowers even more cash-strapped than usual.

In the last quarter, transport costs rose 13.1 per cent as the price of fuel rose to record levels for the fourth quarter in a row.

Meanwhile, grocery shopping is also causing hip pocket pain, with Australians outraged to find lettuce heads selling for $10 a pop and capsicums marked at $15 for a kilo.

Interest rates in Australia reached an all time high of 17.5 per cent in January 1990. Since then, they have averaged 3.93 per cent.

Before this year, the last time the RBA hiked up rates was in 2010. It has only been going down ever since.

As a result, more than one million home borrowers have never experienced an increase in mortgage rates, because they bought a home after 2010.

The official cash rate has been at a record low of 0.1 per cent since November 2020 in response to the Covid-19 pandemic until May 2022.

– with NCA NewsWire

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Business

Big four bank customers hit by $70k ‘loyalty tax’ by rising interest rates, research finds

Big four bank customers hit by $70k 'loyalty tax' by rising interest rates, research finds

Australian homeowners are being slugged with an extra $70,000 over the life of their loan by staying loyal to the big four banks and failing to refinance, new research has found.

It also revealed that the big four banks are raking in $4.5 billion each year as a result of the “loyalty tax” as the Reserve Bank of Australia’s (RBA) super-sized rate hikes are passed on to existing customers.

The RBA has raised interest rates from a record low of 0.1 per cent to 1.35 per cent since May.

The big banks are offering lower interest rates to attract new customers, the research from mortgage broker Lendi showed, while current homeowners are smashed by interest rate rises yet could make huge savings by switching home loan providers.

Lendi’s data showed that at the big banks existing customers are slugged an extra 0.91 per cent on interest rates compared to the offers for new customers.

This means at a big bank, customers are paying an interest rate that is 0.91 per cent higher – forking out an extra $70,000 over the life of a $500,000 loan.

Overall, the whole banking sector is charging current customers interest rates that are 0.86 per cent higher compared to new clients.

On Friday, ANZ Bank announced it would reduce standard variable interest rates for new customers refinancing to the big bank by between 0.1 and 0.5 per cent, yet it passed on the 0.5 per cent hike from July to existing customers.

Lendi chief executive David Hyman said when customers special fixed rates finish, most would not revert to the best available rate.

Instead, he advised customers to call their banks to ask for the same deals as new customers.

Record levels of refinancing

But a record 332,000 Aussies refinanced their properties in Queensland, New South Wales and Victoria in for the 2021/22 financial year, up 29 per cent on the previous 12 month period, according to the latest analysis released by digital settlement provider Pexa Insights.

Victoria recorded the highest volume of refinancing at 131,000 up by 23.7 per cent year-on-year followed by NSW with 127,600 an increase of 25.8 per cent year-on-year.

QLD experienced the highest growth in refinancing with 73,000 up 49.8 per cent for the last financial year.

All three eastern states recorded in excess of 150,000 new residential loans each, with QLD leading the way again with 160,000 home loans completed in the last financial year.

More than 472,300 new home loans were taken out across the eastern states with Victoria posting the highest growth in both new residential loans with 157,660 loans up 10.4 per cent year-on-year.

Mike Gill, Pexa Insights’ head of research, Mike Gill, said initially Australians were taking advantage of record low interest rates to refinance.

“There is now a clear correlation between the high numbers we saw during the financial year 21/22 and the Reserve Bank of Australia’s determination to lift interest rates twice before the close of the financial year,” he said.

“The record levels of new loans coincide with the strong buying and selling activity witnessed throughout the first half of the financial year 2022, in particular in Queensland which has experienced a state-based property boom across home buying and selling.

The race to attract new customers has become “highly competitive” between major and non-major banks for new loans across all three eastern states, he added.

“However, non-major banks recorded higher win/loss numbers for refinances in the same regions,” he said.

“Strong competition within the lending market can only lead to positive outcomes for consumers.”

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