More rate hikes to follow Westpac move: Mozo's Kirsty Lamont

GEUST OBSERVER

Westpac’s move to increase interest rates on its owner occupier loans will be the first from many lenders.

We find that when one of the majors make a change like this, others follow.

Mozo calculates Westpac will earn an extra $1.59 million in interest each day from its decision which will impact existing and new owner occupier and investor loan customers.

With APRA’s requirements not due until 1 July 2016, Westpac has made a bold move to increase rates so early, but we’re going to see a lot more of it over the coming months.

Despite rates being at record lows, lenders are looking at ways to meet APRA”s capital requirements including raising rates, not passing on official interest rate cuts or curbing discounts.

If the RBA cuts rates on Melbourne Cup day, we could see banks holding back part of a rate cut or not passing on cuts altogether.

The ‘borrower bonanza’ of sub 4% variable rates and incentives we’ve seen lately may become a distant memory come 2016.

In another measure to increase the ratio of deposits as a funding channel, Westpac, St George, Bank of Melbourne and Bank of SA have increased at call and term deposit rates.

Westpac upped the introductory rate on its eSaver account by 6 basis points to 3.31% and its 4 and 6 month term deposits by 10 basis points and 1 year term deposit by 5 basis points in September. This comes after a 14 basis point increase in August for the eSaver introductory rate to 3.25%.

After a long period of uncompetitive savings rates, deposit holders might have some light at the end of the tunnel with rates likely to increase over the next six months, thanks to the new capital rules.

It would be highly unlikely for any of the Big 4 banks not to follow Westpac’s early lead - which will also see them gain new deposit business.

Kirsty Lamont is marketing director of Mozo.