Pressure to pass on higher capital costs to investment borrowers is likely to see more interest rate hikes by banks, following last week’s movements from ANZ and the Commonwealth Bank.
The Australian Prudential Regulation Authority’s 10 per cent a year cap on housing investor credit growth was largely behind the two big banks’ lift to investor rates of 0.27 percentage points.
There are reports Macquarie Bank has told brokers they are following suit and all eyes are on the NAB and Westpac to see if they join the others.
The rate hikes could also be driven by APRA requirements for the big banks to manage mortgage portfolios so they are better capitalised.=
The big banks require from APRA a $12 billion lift to their capital requirements by next July and it has many pundits expecting more ‘repricing’ to come as a result.
JP Morgan analyst Scott Manning spoke to the Financial Review and said ANZ’s rate hike last week for investors was a direct response to the APRA changes to risk weights that force banks to hold more capital.
Mr Manning argued that the changes by ANZ and Commonwealth were to their entire investor loan portfolios and if banks were trying to slow growth, they would have changed pricing in the ‘front book’ of new customers, rather than all existing customers.
According to ANZ chief of operations Mark Whelan, the rate rise was nothing to do with the changes to capital rules and were planned several weeks ago.
Macquarie Bank analyst Mike Wiblin predicted in the Financial Review that there was a mortgage repricing cycle about to take place which would help to slow loan growth and ease some of the pressure on bank profit margins.
Brian Johnson is an analyst from CLSA and told the Financial Review he was confident the banks would be able to raise the price of all housing loans by between 0.55 and 0.65 percentage points to maintain their returns in the face of APRA’s tougher capital rules.
Some small banks had already started lifting their investor interest rates before the two big banks did last week, for example CUA and Heritage Bank both hiked their rate by 0.3 per cent.
CUA chief executive Rod Goudeswaard explained the move to the Financial Review.
“We are under similar prudential guidelines as all the other institutions,” he said.
“We have reduced loan-to-value ratios from 90 to 70 per cent for investor loans and our new investor loan rates have increased by 30 basis points.”
Many experts believe other smaller banks such as Suncorp, Bank of Queensland and Adelaide Bank will all make similar moves in the near future.