Adelaide Bank raises rates above RBA's, other banks set to follow

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Adelaide Bank has become the first Australian bank to raise its home loan rates above the official rate set by the Reserve Bank of Australia (RBA). The RBA decided to leave the official cash rate unchanged, at 6.75%, during its meeting on Wednesday, citing the mounting pressure brought by the US credit crisis.

The South Australian lender said interest rates will increase by 0.25% across most of its wholesale home loan products, and include both fully verified and low-doc loans. However, borrowers who have taken fully verified standard home loans through Adelaide Bank's South Australia branches will be spared.

Will Rayner, head of investor relations for Adelaide Bank, said the rate increase will affect more than one-third of the bank's loan portfolio. "It will affect 35-40% of our portfolio, or about 30,000 households across Australia. This rate increase translates to about a $50 rise per month for the average loan of $250,000, so we're not talking huge amounts. Having said that, we didn't make the decision lightly," he said.

Rayner added that the increased price of funding is now a worldwide issue that goes beyond just Adelaide Bank. "This is truly a global phenomenon; it's not just Adelaide Bank that's being affected. Every bank is being affected by the high cost of funding. We've passed it on to our customers and I don't think it's unreasonable to expect that others will follow."

Jamie McPhee, managing director for Adelaide Bank Group, said the company had been holding off on the rise for as long as possible, to prevent the rise being transferred to its customer base.

"We've been absorbing this extra cost since early August," McPhee said. "However, due to continued distressed funding conditions, and taking into account all stakeholders' interests, we can no longer prevent passing some of this cost on to our customers. Adelaide Bank is very mindful of any pressure this decision may place on households and will be working with all of our customers and partners to ensure that the effects of this decision can be managed in the most appropriate way."

It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan

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