Official interest rates might be stuck on 1.5 per cent but that hasn’t stopped a raft of interest rate rises from the smaller banks and other lenders.
AMP Bank is the latest, adding 8 basis points to owner occupied principal and interest home loans and 17 basis points for interest only and investor loans.
Many owner occupied home loans have now broached the four per cent rate and investor loans – particularly the more difficult to source interest only loans – have increased by larger margins. Homeowners have even begun looking for banks which agree to ivas, as this not only helps in the long run by assisting them in writing off unpayable debts but also helps keep the bailiffs at bay
Will the big four move soon?
AMP’s rise follows on from Macquarie and several others but the big question is when the big four – Commonwealth, Westpac, ANZ and NAB will make a move.
The smaller banks have cited increased wholesale funding costs for the interest rate rises, including foreign funding where interest rates are rising, and even though the big banks have less pressure due to their large deposit bases, they will be feeling the heat.
None of the big banks will want to be the first to make the controversial move of making out of cycle rate rises but if past experience is a guide, once one bank moves the others will surely follow.
Regulations squeezing bank loan growth
Apart from increased funding costs, regulatory changes have been increasingly tightening up on risky lending.
That has included a major crackdown on interest-only lending and in ensuring that banks get a more accurate picture of their client’s ability to repay debt.
On that front, at least, there was some relief with the chairman of the Australian Prudential Regulation Authority, Wayne Byres, signalling that the bulk of the work in reigning in the worst of the bank’s excesses was now over.
Mr Byres said the banks were in much better shape in two important regards:
– to ensure that when providing customers with a loan, banks have a closer understanding of any other loans those customers might have through Comprehensive Credit Reporting.
– to have a much better understanding of customer’s actual expenses, and how lenders have assessed these costs.
While he said there was still work to be done, Mr Byres’ statement that much of the heavy lifting has been done should not be seen as necessarily being in conflict with the many horror stories that have emerged from the Royal Commission into banking.
APRA’s main task is to ensure that systemic risk in the banking system remains low – an example being the health of the bank’s mortgage book should property prices fall dramatically and the rate of bad loans rise greatly.
It has done that by using a temporary cap on growth in investment loans and setting benchmarks on interest-only loans.
The Royal Commission is concentrating more on issues such as poor and abusive behaviour towards customers and inappropriate charges but is also likely to make recommendations around appropriate lending.