Both National Australia Bank (NAB) and Australia and New Zealand Banking Group (ANZ) have hiked their fixed interest rates on home loans. Yesterday, NAB said it would hike interest rates on two-, three-, and four-year fixed interest rates, following a round of hikes from ANZ that took effect late last week.

NAB’s two-year rate will lift by 23 basis points to 3.98% per annum, its three-year rate will lift by 20 basis points to 4.09% per annum, and its four-year rate will lift by 60 basis points to 4.59% per annum. NAB is also reducing its one-year rate by 10 basis points to 3.89% per annum.  

“There are a range of factors that influence the funding that NAB – and all Australian banks – source, so we can provide home loans to our customers,” said Antony Cahill, NAB’s chief operating officer.

Cahill noted that the rising cost of providing fixed rate home loans was a major driver for the rate hikes.

“We continue to watch market and economic conditions to ensure we continue to lend and manage our business responsibly, so we remain strong and stable for the benefit of our customers, shareholders, and the broader economy,” he said.

Last Friday, ANZ increased its rates on two-year loans by 23 basis points to 3.9% per annum. The bank also reduced its four-year fixed rate by 10 basis points to 4.74% per annum.

The major banks are hiking rates for both owner-occupiers and property investors. However, these changes will only affect borrowers who take out new fixed loans, not existing borrowers.

Variable rates may be next

On the other hand, there has been some speculation among analysts that banks may also increase their variable interest rates in response to higher funding costs. The Big Four raised variable interest rates for property investors in the weeks leading up to Christmas, but spared owner-occupiers.

Smaller banks have already increased variable rates for owner-occupiers.

Cahill said the funding costs for variable loans remained above historical averages.

“We often talk about cost of funds when we are referring to our variable rate mortgages. What I can say is the cost of funds for those mortgages absolutely remains elevated compared to historical levels,” Cahill told BusinessDay.

“That is something we are continuing to see, and it's something we're still grappling with in working through how we reflect that longer term in terms of competitive positioning and pricing, etc.”