National Australia Bank (NAB) and Westpac have raised interest rates on some of their variable mortgages as Australia’s biggest lenders seek to offset some of the pressure on their margins.

NAB said on Monday it would increase variable rates on investor home loans by 0.15 percentage points from next week onwards. Meanwhile, Westpac—which has already imposed out-of-cycle rate increases of as much as 0.60 percentage points on some of its fixed-rate home loans—has lifted its variable rates for all its interest-only mortgages by eight basis points.

ANZ is the only one of the Big Four banks that has yet to hike its rates (CBA increased its interest rates on fixed-rate owner-occupier and investor loans last week). However, Shayne Elliott, chief executive officer at ANZ, said last week it was “reasonable” to expect his bank to initiate out-of-cycle increases.

The major banks have all cited increased funding costs as the major reason why they’re lifting home loan rates, despite the Reserve Bank of Australia’s cash rate sitting at an all-time low.
“As was evident during the recent bank reporting season, net interest margins - the difference between what we pay to borrow funds to lend to our customers and what our customers pay - are down, particularly in home lending, and they remain under pressure,” Antony Cahill, NAB’s chief operating officer, said.
“A low-rate environment poses considerable challenges to all lenders, and we must respond to what is happening in the economy and the market.”
Raising rates for investor loans and for interest-only loans favoured by investors also help the banks comply with APRA’s rule that they can only grow investor lending by 10% per annum.
“The pricing of interest-only home loans must reflect prudent lending practices in a dynamic and complex home loan market,” George Frazis, chief executive of Consumer Bank at Westpac Group, said.
From December 16 onwards, Westpac, which has already lifted its two, three, and five-year fixed-rate loans by between 0.24 and 0.54 percentage points, will have an interest-only owner occupier variable rate of 5.41%.
The variable rate for interest-only investor loans will be set at 5.68%.
NAB said it would keep its standard variable-rate for residential mortgages at 5.25%, and lift its rate for investor loans by 0.15% to 5.55%.

The RBA board will meet today for the final time this year, and it is expected that Governor Philip Lowe will keep the cash rate on hold at a record-low of 1.5%.