The NAB joins Australia’s other major banks in hiking variable mortgage rates independent of the RBA

  • The National Australian bank has announced it will increase interest rates on variable mortgages for its customers.
  • Rates will lift by 12 to 16 basis points, with the changes effective January 31.
  • Elevated wholesale funding costs were behind the decision to move independent of the RBA.
  • Financial markets see the prospect of a RBA rate cut by November as an even-money bet.

The National Australia Bank (NAB) has announced that it will increase variable rate mortgages for its customers, joining Australia’s other major banks who moved independently from the RBA in the second half of last year.

In a statement, the bank said it would increase its standard variable mortgage rate for owner-occupier principal and interest (P&I) customers by 12 basis points to 5.36%, moving it in line with those offered by other major lenders.

The standard variable mortgage rates at the Commonwealth Bank, Westpac and ANZ currently stand at 5.37%, 5.38% and 5.36% respectively.

Mike Baird, the former NSW Premier who is now NAB’s chief customer officer for consumer banking, said: “Our decision to hold our Standard Variable Rate since September last year, the only major Australian bank to do so, has led to around $70 million remaining in the households of more than 930,000 NAB customers.”

He added: “We wanted to reward our existing customers for their loyalty and held off as long as we could despite being subject to the same increasing wholesale funding costs and market pressures as other major lenders.

“We have been deliberate in our approach to limit the impact on owner occupier borrowers by keeping their rates as low as possible to encourage both new and existing customers to pay down their loan sooner.

“We are focused on rewarding our loyal customers including engaging with our home loan customers with our check in program.”

In justifying why the bank decided not to follow Australia’s other major banks in lifting variable interest rates last year, NAB CEO Andrew Thorburn said in September that the decision was to help “our customers more”.

“Because we know that by holding our rates for longer, we’re helping our customers more,” he said in a Twitter post at the time.

“We are listening and acting differently.

“We need to rebuild the trust of our customers, and by holding our NAB Standard Variable Rate longer, we help our customers for longer.

“By focusing more on our customers, we build trust and advocacy, and this creates a more sustainable business.”

Facing elevated wholesale funding costs, those views have now obviously been overridden by profitability considerations.

Along with higher owner-occupier rates, the NAB’s standard variable rate for investor P&I mortgages will increase by a larger 16 basis points to 5.96%.

Variable rate interest-only owner-occupier and investor mortgage rates will also increase by 16 basis points to 5.93% and 6.41% respectively.

The rate changes are effective from January 31.

While the NAB move brings its standard variable owner-occupier P&I rate in line with Australia’s other major lenders, it will only increase concern about a more pronounced housing-led slowdown across the Australian economy.

It will also do little to deter speculation from financial markets that the RBA may be forced to cut its cash rate this year. Current pricing puts the odds of a 25 basis point cut by November, taking the cash rate to 1.25%, at around 50%.

An increasing number of economists also share this view, including AMP Capital’s Shane Oliver who are forecasting the RBA will cut rates not once but twice before the year is out.

Following the NAB’s decision to lift rates, it could also prompt other lenders to follow suit as has frequently been seen in the past.