Commonwealth Bank of Australia (CBA) has revealed that the standard interest rates offered on its home loans are to be increased from 8.57% to 8.67%. This rise has been motivated by the turbulent global credit conditions which have prevailed in the wake of the US sub-prime meltdown. Two other major Australian banks, National Australia Bank (NAB) and Australia and New Zealand Banking Group (ANZ), have also raised their mortgage rates recently. NAB raised its variable mortgage rates by 12 basis points, while ANZ rates were lifted by 25 basis points.
The global credit crisis has increased funding costs for financial institutions, especially for non-bank lenders which lack a deposit base from which to fund part of their loans. However, banks with large deposit bases are less vulnerable to the overseas commercial paper market, and CBA has been regarded as the Australian bank with the least exposure to overseas funding costs. Even though the CBA rate rise was smaller than that of NAB and ANZ, some observers still question if the rate rise was justified. The federal treasurer, Wayne Swan, has recently criticized banks for increasing mortgage rates.
The recent rate rises by three of the major Australian banks are expected to trigger another round of rate rises by other financial institutions, including non-bank lenders, which have faced even more steeply increasing costs. The situation of Australian mortgage borrowers is thus set to become even worse. An increasing number of Australian mortgage borrowers are already facing financial stress, and repossessions have been on the rise in some areas of the country. As long as the global credit situation does not improve, the pressure on Australian mortgage borrowers is set to continue. 'End Intelliext
Sign up to our weekly newsletters for the latest industry news & comment.