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Up they go again

November 11, 2023

Welcome to the finance update for the week ending 11 November, 2023.

Just when we thought we’d sent the last email relating to rate increases for quite a while, here we are at it again, a lot sooner than most commentators would have imagined four months ago. We’ll go into the implications of the latest increase below, but first, I want to vent about bank profits – again.

NAB released their full year results, and “despite facing headwinds from rising rates and inflation” their full year profit was up by over 16% on last year’s result to a massive $7.7 billion. Of course, a sizeable portion of this result was due to increased margin on their home loans at the expense of their suffering borrowers. Curiously, this result wasn’t good enough for their major shareholders, with their share price dropping by 0.8% on the day the results were announced.

Below we take a look at what has played out in the home loan market since Tuesday’s announcement.

After maintaining stability in interest rates over the past four meetings, the Reserve Bank opted to increase its cash rate target by a quarter of a percentage point this week.

The most recent rate hike is expected to result in an additional monthly repayment of approximately $76 for a $500,000 home loan. Since the Reserve Bank commenced its rate hikes, monthly mortgage costs on such a loan have surged by over $1,200 or a whopping 52 percent.

How have banks responded this week?

CBA revealed on Thursday afternoon that it would increase its variable home loan reference rates by 0.25% after NAB, ANZ and Macquarie Bank announced on Wednesday that they too would pass on the cash rate hike to their variable borrowers in full, all effective from November 17.

Whilst Westpac followed suit, the increase to their rate won’t become effective until November 21.

The change in numbers

CurrentNew
CBA6.24%6.49%
NAB6.59%6.74%
Westpac6.09%6.34%
ANZ6.19%6.44%
Macquarie5.89%6.14%

Impact on borrowing capacity

In the case of a couple with no dependants and a combined income of $160,000, CBA’s borrowing capacity calculator reveals that the increased interest rate will reduce their borrowing capacity by $16,600.

Whilst this in isolation isn’t a huge difference in percentage terms at a reduction of just over 2%, it means that the couple in this example may need to save for many months longer to have a deposit.

If you have clients who are concerned about the pending increase, have them call us on 1300 366 296 to discuss their options.

Any changes in interest rates from last week are highlighted in orange.

Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.

Variable

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.

1 Year Fixed

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.

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