Media Release

Interest Rate Update: Commonwealth Bank latest to lift investment home loan rates

  • Commonwealth Bank latest of big banks to increase investment home loan rates
  • Likely that owner-occupied home loans will follow
  • Great opportunity to compare big banks with smaller lenders

Comments by Michelle Hutchison, Money Expert at one of Australia's biggest comparison websites finder.com.au1:

"The remainder of Australia's major banks – National Australia Bank, Westpac and Macquarie Bank – are expected to follow ANZ and Commonwealth Bank's lead and increase their investment home loan interest rates.

"Commonwealth Bank was the latest to announce it will increase its standard variable investment home loan rate by 0.27 percentage points to 5.72 percent, and its 1-5 year fixed investment loans by 0.10-0.40 percentage points.

"ANZ also announced earlier this week that it will lift its standard variable investment home loan rate by 0.27 percentage points to 5.65 percent.

"The move follows the latest announcement by the Australian Prudential Regulation Authority (APRA) on July 20, 2015, that banks accredited to use the internal ratings-based approach (IRB) – which include the big four banks and Macquarie Bank – must lift their capital adequacy requirements for residential mortgage exposures from 16 percent to at least 25 percent, effective July 1, 2016.

"So far investment home loans have been negatively impacted but it's likely that the major banks will use this new rule as an opportunity to lift owner-occupied home loan rates.

"Borrowers with a $600,000 home loan could face paying an extra $894 per year following the new APRA rules. For a $300,000 mortgage, borrowers could pay an extra $47 per year.

"Based on 30-year home loan of $300,000, homeowners could face increases of $19 per month or $223 per year for a 0.10 percentage points rise. If rates increase by 0.20 percentage points, this loan size could rise by $37 per month or $447 each year.

"For a $600,000 loan the outlook is even worse, with an extra $37 per month or $447 per year for a 0.10 percentage point rise and $75 per month or $894 per year for a 0.20 percentage point rise.

"We think it’s great that APRA is encouraging our big banks to be world-class in terms of risk however, if it impacts on the cost of a mortgage it will hurt borrowers. It’s important for banks to consider the best way to increase capital in line with the new APRA rules without adversely affecting consumers.

"If interest rate do rise as a result of the new rules, borrowers with the big banks – which is over 80 percent of borrowers – need to ensure they have a buffer to be able to afford higher costs down the track.

"However, the new rules will also bring greater opportunity for smaller lenders to shine so borrowers should keep a close eye on the home loan market over the coming months and compare the big banks with smaller lenders to get an even better deal."

Extra costs for repayments on a $300,000 loan

+0.10 percentage points: 5.30%+0.20 percentage points: 5.40
Monthly Increase$19$37
Yearly Increase$223$447


Extra costs for repayments on a $600,000 loan

+0.10 percentage points: 5.30%+0.20 percentage points: 5.40
Monthly Increase$37$75
Yearly Increase$446$894

Source: finder.com.au, based on current average variable rate of 5.2% over 30 years, rounded to the nearest dollar

1Experian Hitwise since 2013

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Disclaimer

The information in this release is accurate as of the date published, but rates, fees and other product features may have changed. Please see updated product information on finder.com.au's review pages for the current correct values.

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