June 27, 2017 / 2:17 AM / 6 months ago

Australia's CBA hikes interest-only mortgage rates

SYDNEY, June 27 (Reuters) - Commonwealth Bank of Australia , the nation’s No.1 mortgage lender, hiked interest-only home loan rates by 30 basis points on Tuesday, as the “Big Four” heed policy makers’ calls to defuse financial stability risks by slowing lending.

The move follows similar actions by its three main rivals - ANZ Banking Group, National Australia Bank and Westpac Banking Corp - as regulators fret over financial stability risks amid rising housing prices and record-high household debt.

It was the second out-of-cycle increase - not in lock-step with central bank action - by the “Big Four” in just three months. The Reserve Bank of Australia (RBA) has held rates steady at a record low 1.50 percent after last easing in August 2016.

The change, effective July 7, will bring CBA’s investor interest-only rate to 6.24 percent and owner-occupied interest-only rate to 5.77 percent.

At the same time, the bank said it will lower variable interest rates by 3 basis points on principal and interest home loans to 5.22 percent for owner occupiers.

“These changes help us keep the right balance in our home loan portfolio, in line with what our regulators require,” said Matt Comyn, group executive of retail banking services.

Regulators have intensified pressure on the quartet to slow down lending, in particular interest-only loans which are massively favoured by speculative investors and have been a key driver of rapid home price gains in recent years.

Policy makers are worried excessive debt in the property market will hurt spending elsewhere in the economy and lead to financial stability risks as the household debt-to-income ratio has climbed to an all-time peak of 189 percent. (Reporting by Swati Pandey; Editing by Shri Navaratnam)

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