Australia’s biggest bank has announced a huge hike to one of its interest rates in a sign borrowers will continue to feel the pain.
Financial analysts are shocked at the size of Commonwealth Bank’s fixed rate hike of 1.40 percentage points for both owner-occupiers and investors that comes into force on Thursday.
“Today’s fixed rate hikes from Australia’s biggest bank are anything but typical. We haven’t seen one-off hikes of this size and scale from CBA in our records,” RateCity research director Sally Tindall said.
“The bank is responding to the rising cost of fixed-rate funding and a market that refuses to believe the RBA will stop hiking the cash rate at around 2.50 per cent.”
Ms Tindall said the one fixed rate under 2 per cent that CBA was offering less than a year ago now felt like a “distant dream”.
“Today the bank’s lowest fixed rate is just under 5 per cent, while the majority are well over 6 per cent,” she said.
Craig McDonald, from CBM Mortgages, said Thursday’s move by CBA was the single biggest increase the market had seen.
“We’ve been seeing all the banks continuously increase their fixed rates over the past few months, but generally it’s been an increase of 0.25 per cent to 0.5 per cent to their existing rates,” he said.
“I’m now expecting all the other major lenders to follow suit in the next week as they don’t normally leave this big a gap between competitors.
“What we are also seeing are the banks offering more aggressive pricing on their variable rates.”
The change comes less than a fortnight after CBA hiked rates for both new and existing variable loans by 0.50 percentage points.
It follows a decision by the Reserve Bank to dramatically lift the cash rate in May and June to 0.85 per cent after its historic low imposed to counter the economic shock from the Covid-19 pandemic.
A third successive rate hike is expected next Tuesday after the RBA board holds its July meeting.
RBA governor Philip Lowe last week said an interest-rate increase of 0.75 percentage points would “not on the table” this time around.
Speaking to a central banking audience in Zurich, Mr Lowe suggested an increase of 0.25 or 0.5 percentage points was on the cards.
Financial comparison website Canstar’s Steve Mickenbecker said lenders hadn’t wasted any time in following the RBA with home loan interest rate increases.
He said the majority of lenders had passed on the full 0.75 per cent to borrowers since the May cash rate hike.
“You would have to anticipate the same if we see another increase in July,” he said.
“With borrowers already dealing with minimal wage increases alongside higher-priced petrol, power, groceries and bills, it is little wonder they are becoming concerned.
“There are still great rates available below 2.50 per cent, and refinancing into a lower rate will start the clock ticking on future Reserve Bank cash rate increases from a lower level.”