Banks Quickly Pass on Rate Rise to Home Loan Customers

Strategic Insights -

Following the Reserve Bank's announcement of a 1 percentage point rise in official cash rates, the Commonwealth Bank, St George Bank, and Advance Bank swiftly passed on the increase to their home loan customers. Analysts predicted that the banks would ease competitive pressure, with the housing market slowdown reducing the incentive for aggressive rate cutting. The key variable home loan rate has surpassed the 10% barrier, previously considered a marketing hurdle for banks, further easing pressure.

Key Takeaways:

  • The Commonwealth Bank, St George Bank, and Advance Bank passed on the 1 percentage point rise in official cash rates to their home loan customers.
  • The slowdown in the housing market has taken competitive pressure off the banks, reducing the incentive for aggressive rate cutting.
  • The key variable home loan rate has surpassed the 10% barrier, previously considered a marketing hurdle for banks.
  • The Reserve Bank's rate increase has already pushed the key variable home loan rate through the 10% barrier.
  • The Commonwealth Bank increased its variable home loan rate by 0.95 percentage points to 10.5%, while St George Bank moved its variable home loan rate by a full percentage point to 10.5%.
  • Advance Bank plans to move to a variable home loan rate of 10.5% in the new year, up from 9.5% previously.
  • National Australia Bank, a major competitor of the Commonwealth Bank, made no changes to its existing rates and will discuss whether rates should move tomorrow.
  • The Commonwealth Bank's capacity to absorb further increases is restricted due to market forces, with wholesale prices increasing and depositors facing higher rates.
  • Further interest rate increases are likely if the Federal Government continues to use monetary policy as the only measure to contain inflation.

Statistics:

  • The official cash rate has risen by 2.75 percentage points in three stages since the Reserve began taking rates higher last August.
  • The Commonwealth Bank's variable home loan rate rose by 0.95 percentage points to 10.5%, while St George Bank moved its rate by a full percentage point to 10.5%.
  • Advance Bank's variable home loan rate will rise to 10.5% in the new year, up from 9.5% previously.
  • The Commonwealth Bank's index rates on overdrafts and loans for commercial borrowers rose to 11.25% from 10.3%.

Sources:

  • "McCaguan's Hobson says banks are ready to pass on rate rises" - Malcolm Maiden (no date provided)
  • ANZ McCaughan, banking analyst, Mr. John Hobson
  • The Commonwealth Bank
  • St George Bank
  • Advance Bank
  • National Australia Bank