Anz Customers Hit Hardest, But Relief On Way

The Age

Wednesday March 12, 2008

Leon Gettler, Financial Services Reporter and Tim Colebatch, Economics Editor

THE worst news from banks has been saved until last. A day after Commonwealth lifted its home loan interest rate above its competitors', ANZ and St George have raised the bar higher again, hitting their customers with a standard variable rate of 9.37%.

Just behind them is the self-proclaimed community bank, Bendigo, which has announced that its standard rate would go up to 9.35%. But relief may be in sight for Australia's 2.4 million mortgage holders, with fresh signs that the economy is slowing and that rates could be on the way down within 12 months.

After the latest moves by ANZ, St George and Bendigo - each are adding 0.35% to their standard home loan charges - every bank in the country has now raised its rates by more than the Reserve Bank's 0.25 percentage point increase last week.

The banks say they have been forced to raise rates by more than the official increases because some of the money they lend for housing is sourced from overseas, where costs have soared due to the global credit squeeze.

In the latest round of increases, however, there has been variation among the banks. While most have helped themselves to another 0.10% above the official increase, National Australia Bank has added only 0.04% and Westpac 0.05%.

The banks say they are not passing on all their increased costs to customers. "Not only is wholesale funding now coming at a much higher cost, but liquidity is continuing to tighten as global markets ration debt funding," ANZ's group managing director, personal, Brian Hartzer, said.

"Unless we strike a balance between absorbing some of the increase and passing some on to customers, we will ultimately be limited in the amount we are able to lend customers to buy houses or to expand their businesses."

St George's chief financial officer, Michael Cameron, said: "Since August last year we have been absorbing a significant increase in our funding costs . . . while we had hoped that conditions would soon return to normal, in fact we have seen these costs continue to increase."

Further signs emerged in the economy and markets yesterday that Australia's six-year run of interest rate increases may soon end - if it has not ended already.

A NAB survey found that growth in business activity dipped again in February, with all the signs pointing to further slowing ahead. NAB's chief economist, Alan Oster, and the head of Australian economic analysis, Jeff Oughton, believe the Reserve Bank has delivered its last rates rise in the current phase and that it is likely to cut rates significantly in 2009.

Financial markets, which until recently had thought interest rates would rise again in May, are now pricing in the possibility of no further rise and a rate cut within a year.

Paul Lahiff, managing director of Mortgage Choice mortgage brokers, called on the Government to scrap its tax cuts to make room for a pause in interest rate rises. "While there is no doubt that the promised tax cuts will provide some short-term relief to families with mortgages, they are inflationary and will inevitably lead to another round of official rate increases," he said.

Shadow treasurer Malcolm Turnbull told Fairfax radio it was unlikely that Australia would go into recession, although it was possible. "The country faces a very dangerous and deteriorating environment . . . (but) I would not go so far as to say that we will go into recession. At this stage I think it is unlikely," he said.

Other economic figures yesterday confirmed a slowdown. The ANZ said job ads in newspapers and on the internet declined in February, their first fall since 2006, and the Bureau of Statistics said the number of owner occupiers buying new homes was at a two-year low.

INSIDE

BUSINESSDAY

? Signs of weakening economy

? Borrowers face rationing

? Repair job needed

© 2008 The Age

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