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Interest Rates: NAB, Westpac first to raise mortgages by 0.25 percent

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Interest rates rose for the tenth consecutive time in March – increased by 0.25 percent, taking them to a 10-year high of 3.6 percent – ​​and now the first major banks have responded.

NAB announced that the standard variable rate for home loans will increase by 0.25 percent, effective March 17.

Westpac said it also passed the rate hike in full for new and existing customers with rates rising 0.25 percent from March 21.

NAB said it will also increase rates on three of its savings products, with the NAB Reward Saver bonus rate increasing by 0.25 percent, bringing the total interest rate to 4.25 percent.

It also increased its NAB iSaver introductory and default variable rates to 4.25 percent. 1.6 percent respectively

Meanwhile, NAB’s term deposits for a range of products will increase by up to 1.1 percent and the 12-month term will increase to 4.2 percent.

Some savers at Westpac will also be rewarded with a 0.25 percent increase in the default variable rate, bringing the total rate with bonus interest to 4.25 percent as of March 17. Westpac eSaver’s standard variable rate will also increase by 0.25 percent, bringing the total variable rate for new eSaver customers to 4.25 percent for the first five months.

Rachel Slade, director of the NAB personal banking group, said the bank helped customers who were finding it harder to make ends meet, including those facing financial challenges for the first time.

“We know that most of our clients are in good shape, but for some Australians financial difficulties can be a whole new experience as rising costs put greater strain on their finances,” she said.

“Our support is designed to help our customers through the tough times, and we know that when our customers reach out to our NAB Assist team early for help, more than 95 percent of them are financially back on their feet within three months .

“As rates rise, so does the focus on savings and deposit products, so now is a great time to shop around and find the best rate and product features that work for you.”

Last month, all major banks fully passed on the interest rate increase to homeowners.

Chris de Bruin, Westpac’s CEO for consumer and corporate banking, said that for credit customers, the bank understands that after several consecutive interest rate hikes, some people are starting to cut their spending to balance the budget.

“We also realize that there is a certain amount of uncertainty in the economic outlook and that is cause for concern,” he said.

“To help customers manage their budget, we provide a range of tools in the Westpac app to track expenses and break down expenses. We also encourage customers to use our mortgage calculator to understand the impact of rising interest rates on their repayments.

“While the majority of our clients are well positioned to absorb the impact of rising interest rates, we recognize that cost-of-living pressures are challenging. We stand ready to support customers requesting emergency assistance at this time.”

The rate hike means an additional $77 added to monthly payments on a $500,000 loan, according to RateCity, with a whopping $983 extra per month accrued since the first rate hike in May 2022 — or a 42 percent increase.

Meanwhile, a $1 million loan, which is the median home price in Australia, would add $156 to monthly mortgage payments with the rate hike.

ANZ, NAB and Westpac all predict interest rates will peak at 4.1 percent with increases in March, April and May, while the Commonwealth Bank believes rates will only rise to 3.85 percent.

With annual inflation at 7.4 percent, CBA is the first to believe it will be addressed by the end of the year, which will drive rates lower.

CBA has forecast interest rates to fall by 0.5 percent in the last three months of the year, followed by more rate cuts in the first half of 2024, with interest rates falling to 2.85 percent by June 2024.

But the big bank is an outlier compared to the projections of the others.

Westpac forecasts a total of seven interest rate cuts in 2024 and 2025 and predicts that rates will reach 2.35 percent by September 2025.

NAB thinks the rate cut won’t start until March 2024, predicting interest rates to fall to 3.1 percent in June 2024, while ANZ predicts the first rate cut will be in November 2024.

But Russel Chesler, head of investments and capital markets at private equity firm VanEck, said the case for two more rate hikes weakens as the risk of an economic slowdown grows with each 0.25 percent increase.

“The RBA has its eye on slowing economic data points and its hand is hovering on the brakes. We think there will be another rate hike to 3.85 percent in April before the central bank hits the pause button and keeps rates at 3.85 percent for a while longer,” he predicted.

“The winds are changing, over the past month we have seen consumer confidence decline, weaker GDP growth, missing monthly CPI estimates, wage growth below expectations and housing finance numbers remain low.

“While consumers continue to show resilience in the face of rising costs, we think the increases will hit harder from here as a large number of fixed mortgages mature in the coming months and cost-of-living pressures really start to snowball.”

He added that the savings rate has now fallen below average levels, while a slowdown in retail discretionary spending appears to be gaining momentum.

“Many retailers have noticed a shift in consumer preferences towards low-cost or no-frills purchases. We think that those savings buffers are exhausted and are increasingly being swallowed up by higher interest costs,” he says.

“Weakness in the furniture and appliances sector is likely to slowly spread to other sectors, such as vehicles and apparel, which have been relatively resilient so far.

“We expect unemployment to rise to 4 percent over the course of the year, with increasing migration improving supply and a slowing economy reducing labor demand.”


Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.