Three of Australia’s big four banks have responded to the shock rate hike, with countless mortgage holders soon to feel the pressure.
Australia’s banking giants have responded to today’s historic rate hike, as homeowners brace for months of pain ahead.
On Tuesday afternoon, the Reserve Bank of Australia resolved to raise the nation’s official interest rate for the first time in 11 years by 25 basis points, from 0.1% to 0.35%.
The rate increase was announced in response to skyrocketing inflation, which has hit an annual rate of 5.1 percent and sent prices rising at the fastest pace in two decades.
It also marks the first rate increase during an election campaign since 2007, when John Howard was defeated by Kevin Rudd.
The Commonwealth Bank was the first to react, matching the RBA and raising variable interest rates on its home loans by 0.25 percent.
CBA, which is Australia’s largest bank and has a quarter of all home loans in the country, said the increase would take effect from May 20.
CBA retail banking group executive Angus Sullivan acknowledged that rate hikes would be strange for many of his home loan clients.
“We’re here to help customers who have loans and are considering how payments might change. Some options available to help our customers manage payments include fixing or splitting loans or setting up a clearing account,” said Mr. Sullivan.
CBA clients with a $500,000 principal and interest loan will see their payments increase by an additional $68 per month, according to Mozo’s online calculator.
ANZ followed suit shortly after CBA, announcing that it would also transfer the full amount to home loan customers from May 13.
Westpac was the first major lender to respond to the RBA announcement, issuing a tweet within minutes.
It later announced that it will also follow and increase variable interest rates on home loans by 0.25 percent for new and existing customers starting May 17.
NAB has yet to respond to the RBA’s historic rate hike.
Banks ‘surprised’ by increase
The nation’s cash rate has stood at an all-time low of 0.1 since 2020, when it was slashed in response to the Covid-19 crisis.
Prior to today’s RBA announcement, ANZ, NAB and Westpac had all forecast a 0.15 percent rate hike in early May, while the Commonwealth Bank expected a rate hike in June, after the election was behind us.
All four were caught off guard by the central bank’s decision to raise the cash rate by 25 basis points, a scenario few saw coming.
St George, which merged with the Westpac Group in 2008, shared an identical message on its Twitter account.
Homestar Finance also announced that it would be keeping its lowest variable-rate loan on hold at 1.79 percent, for new customers only.
The ‘big question’ facing Australians
As news of the first rate hike in over a decade sinks in, attention now turns to how banks will react.
“The big question now is how quickly lenders will pass the official rate hike on to their customers and raise rates by more than 25 basis points,” Mozo spokesman Tom Godfrey said.
“Obviously this will be another hit to the family budget at a time when many borrowers are trying to come to terms with high prices at gas stations and at supermarket checkouts.”
When the Big Four banks last moved variable rates following an RBA decision in March 2020, they took an average of 14 days to pass the rate cut on to their clients and all passed it on in full.