March 16, 2017 / 6:28 AM / in 9 months

UPDATE 2-Australia's NAB hikes home loan rate, may hurt economy

* NAB raises home investor loans by 25 bps to 5.8 pct

* Move follows strong growth in investor lending segment

* Owner occupier rates up by 7 bps to 5.32 pct (Writes through, adds investment manager, analyst quotes)

By Swati Pandey

SYDNEY, March 16 (Reuters) - National Australia Bank became the first of the country’s Big Four lenders to raise mortgage rates on Thursday, a move that in part will be welcomed by regulators desperate to cool runaway real estate prices.

NAB, Australia’s No.4 lender by market value, raised interest rates on residential investment loans by 25 basis points to 5.80 percent to clamp down on the “strong growth” in the segment, it said in a statement.

But it also raised owner-occupier loans by 7 basis points to 5.32 percent, a move that analysts said could draw flak from consumers and politicians.

Earlier this week, a senior central banker signalled regulators were ready to impose tighter lending restrictions to ward off risks in a housing market that has seen prices grow at their fastest since 2010.

Home prices in major cities jumped 11.7 percent in the year through February, while in Sydney they have shot up 18.4 percent.

While authorities should welcome moves to dampen speculation in property, high loan rates for home occupiers could risk hurting the broader economy at a time when it still needs support.

“The major surprise was the increase in owner occupier rates, coming at a time when consumer spending is relatively weak,” said Shane Oliver, head of investment strategy at AMP Capital.

Oliver said there was a danger that higher home loan rates for owner occupiers could weaken the economy to a point that the central bank is forced, reluctantly, to cut the policy rate already at a record low.

“If we see a few more of these out of cycle rate hikes it could contribute to another rate cut by the RBA.”

The Reserve Bank of Australia (RBA) kept its policy rate at 1.50 percent for an eighth straight month in March and has signalled a steady outlook for the year ahead.

RBA governor Philip Lowe recently spoke about the danger of a debt-fuelled boom and bust, adding further interest rate cuts would not be in the national interest.

But an increase in official cash rates is also undesirable as the economy still needs support with the jobless rate at a 13-month peak and wage growth at its weakest in nearly two decades.

For banks, rising cost of borrowing, stiff lending competition and onerous regulations mean they are forced to push interest rates higher to protect their profitability.

“Banks are trying to get it across to politicians and the public that higher regulatory requirements come at a cost and banks are going to use their repricing powers to limit their damage,” said Morningstar analyst David Ellis.


The value of home loans rose 1.5 percent in January to stand 11 percent up annually, latest data showed. Growth was largely driven by a 4.2 percent jump in the value of loans to investors in January alone, with the annual pace surging 27.5 percent.

It is this boom in investment home lending that regulators want to contain.

Already, the major banks share of new mortgages written has sunk to 65.25 percent from a peak of 72.2 percent in August.

“If the major banks lose market share at this high end of the cycle they are actually doing themselves a favour. So if and when the housing cycle turns down they won’t be stuck with a lot of these more risky home loans,” Ellis added.

On Wednesday, Commonwealth Bank of Australia, the nation’s largest mortgage provider, and its subsidiary Bankwest said they will raise interest rates and toughen lending conditions for investment property buyers.

Westpac and ANZ declined to comment on the future course of rate action, while CBA could not immediately be reached. (Additional reporting by Wayne Cole and Cecile Lefort; Editing by Simon Cameron-Moore)

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