Westpac set to increase home loan interest rates following new APRA regulations

Westpac announced on Wednesday it is all set to increase home loans interest rates for owners as well as investors by 20 basis points.

The decision was made to comply with the Australian Prudential Regulation Authority's (APRA) recently introduced rules, which expect lenders to have sufficient capital so that they can easily deal with possible losses and secure their businesses. The APRA rule will ensure better capital reserves even in the midst of a financial crisis.

The change in the rate will be reflected in the market from Nov. 20, while some of the new term deposits would be affected by the change from Friday. The hike will make the final rate of interest reach 5.68 percent for owners, and 5.95 percent for investors.

“While Westpac is well placed to meet these changes, a significant increase in capital ultimately increases the cost of providing home loans to customers,” Westpac’s consumer bank chief executive George Frazis said in a statement. He also added that it was a difficult decision for the bank, and one that might affect customers significantly.

CMC’s chief market analyst Ric Spooner indicated the chances of an interest rate cut by the Reserve Bank following Westpac's announcement. “This bank rate hike represents a degree of tightening which may increase pressure on the RBA to cut official rates in future,” he said. He also said that the step taken by the second largest bank in Australia might affect its customer base adversely.

Westpac justified its decision and said that the increase in mortgage rates will help in hiking capitals for the bank. “Capital raised responds to changes in mortgage risk weights that will increase the amount of capital required to be held against mortgages by more than 50 percent, with the increased regulatory required to be applied from July 1, 2016,” it stated.

The final profit earned by the lender will be released in November.

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