Commonwealth Bank, Westpac hike mortgage rates as new data shows new loans plunging

Australia’s housing market was already in free fall before the latest rate hikes, and loan approvals collapsed.

The value of new mortgages is falling dramatically as economists predict that property prices in Australia will eventually fall 20 percent from their peak, and interest rates will rise for the seventh straight month in November.

The Commonwealth Bank and Westpac on Wednesday became the second and third major banks to raise their variable mortgage rates to reflect the Reserve Bank of Australia’s latest rate hike of 0.25 percentage point.

CBA, Australia’s largest mortgage lender, announced that variable rates would rise on Nov. 11, a day after NAB announced that mortgage rates would also rise that day.

Angus Sullivan, Commonwealth Bank’s retail banking group director, acknowledged that some borrowers would struggle with yet another raise.

“We understand that the rapidly changing pricing environment may raise questions for some of our customers and we are here to help,” he said.

The number of new mortgages for borrowers of owners who live in their home rather than rent it out fell 9.3 percent in September, the Australian Bureau of Statistics said on Wednesday.

They fell for four consecutive months in June, July, August and September.

Total home loan pledges, for both owner-occupiers and investor landlords, fell 8.2 percent in September.

Investor credit obligations fell by six percent.

The most recent data was released a day after the Reserve Bank of Australia raised spot interest rates by a further 0.25 percentage points to a new nine-year high of 2.85 percent.

The seventh consecutive monthly increase was the largest in a row since the RBA began publishing a cash target in 1990.

The latest increase means a popular Commonwealth Bank variable loan will rise 25 basis points to 4.79 percent in November from 4.54 percent.

As a result, a borrower with an average loan of $600,000 will see their monthly repayments increase by $90 to $3,145 next week, up from $3,055.

As late as May, this borrower’s repayments were $2,306 under a floating rate of 2.29 percent, with the latest increase marking an $839 increase in mortgage repayments in just six months.

Westpac announced later on Wednesday afternoon that it would also pass the latest increase in the RBA, making it the third major bank to do so.

That 0.25 percentage point increase will take effect on Nov. 9, which will raise a comparative variable rate from 4.57 percent to 4.82 percent.

Despite the increases, Chris de Bruin, director of the consumer and investment banking group at Westpac, said the number of calls for help has not increased.

“As interest rates continue to rise, we understand that some people will feel more financial pressure,” he said.

“While we have not seen an increase in the number of requests for assistance and the majority of our customers are still ahead of the curve with refunds, we are standing by to support customers who may need additional assistance.”

The 2.75 percentage point increase in the RBA since May is similar to the level of the tightening in 1994.

AMP Capital forecasts a 15 to 20 percent decline in Australian property prices from the 2022 peaks.

Senior economist Diana Mousina said forthcoming data is likely to show a further decline in new loans.

“Further declines in home loans are expected as interest rates rise again in October and November and another rate hike is expected in December,” she said.

Westpac senior economist Matthew Hassan said rising construction costs, in particular, are repelling potential borrowers from owner-occupiers.

“Interest rate hikes and a sharp rise in construction costs are starting to affect new construction activities,” he said.

The Reserve Bank forecast on Tuesday that inflation will hit a new 32-year high of 8 percent in 2022.

September quarter inflation of 7.3 percent was the highest since the March quarter of 1990.

Governor Philip Lowe also expects inflation to remain above the RBA’s two to three percent target in 2024.

“I understand that the higher interest rates needed to control inflation are not welcomed by many people, especially those who have borrowed large sums of money lately,” he told a dinner in Hobart on Tuesday evening.

“During our meeting, we discussed how higher interest rates are putting pressure on household budgets at a time when high gas prices and grocery bills are also weighing on budgets.

‘We are aware of this and will certainly take it into account.’

Sydney is Australia’s most interest-rate sensitive market, with the median home price falling another 1.5 percent to $1,257,625 in October, CoreLogic data shows.

Prices have fallen by 10.6 percent since the beginning of the year.

But despite that, the average price means that a borrower with a 20 percent down payment still has a $1 million mortgage.

An average, full-time employee with $92,030 would have a debt-to-income ratio of 10.9.

This is significantly higher than the Australian Prudential Regulation Authority’s six threshold for mortgage stress.