Westpac will increase its variable mortgage rates to counter rising funding costs that are threatening the bank’s profit margins.
It is the first of the big four banks to raise interest rates for all its variable home loans this year, although many smaller banks had already moved to offset higher costs.
The bank said all variable mortgage rates will rise by 14 basis points (0.14 percentage points) from September 19.
The increase will apply to new and existing customers, and affects both owner-occupiers and investors.
Chief executive Brian Hartzer told the ABC’s PM program that a rise in interest rates on financial markets — particularly Australia’s 90-day bank bill swap rate (BBSW) — has increased Westpac’s costs.
“That started going up in February, we were hoping that that would go back down, it hasn’t and, after six months at a sustained level, we’ve reluctantly concluded that it’s going to stay at that more elevated rate, and therefore we came to the conclusion that that needed to be reflected in the price of our loans,” he explained.
While Mr Hartzer does not expect the cost of wholesale funding to come down, he also does not expect it to rise further, implying that this may be a one-off out-of-cycle rate increase.
“We’ve come to the conclusion that the wholesale borrowing cost seems to have stabilised at about this level and therefore that’s how we’ve done our calculations and why we’ve landed where we did,” he told PM.
