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'Unsustainable' mortgage pricing drives bank to lift rates

A regional bank has decided to increase its residential mortgage variable interest rate in response to rising funding costs.

Bendigo Bank announced on Friday that its variable rate will increase by 10 basis points to 5.48 per cent owner-occupied and 5.76 per cent for investor loans.

Bendigo and Adelaide Bank managing director Mike Hirst said the adjustment reflects “that recent ultra-competitive mortgage pricing is unsustainable”.

“The cost of funding these loans through both retail deposits and wholesale term debt is rising. Global financial markets have been volatile and this is impacting the cost of raising funds domestically as competition for stable deposits increases,” Mr Hirst said.

“Even after this change, the vast majority of our borrowers pay well below the standard residential mortgage variable interest rate, and at rates which are a far cry from the 7.8 per cent interest rates seen in November 2010.”

The rate hike comes after the Reserve Bank of Australia decided to keep the cash rate on hold at its final board meeting of the year. Out-of-cycle rate hikes have become a key talking point in the banking industry over recent months and featured heavily in the recent inquiry into the big four. 

Mr Hirst used Bendigo's AGM back in October to explain why changes to the official cash rate have little to do with the pricing of home loans.

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“Hopefully, Australians understand there is no direct link between changes in the cash rate and what happens to rates on loans and deposits, despite some recent opportunistic commentary to the contrary,” he said.

“It is a complex issue, but even a simplistic understanding of why banks price as they do will go some way to easing the angst.”

Mr Hirst explained that banks do not fund all their loans at the official cash rate, but from many different sources at many different rates, including business and consumer transaction accounts, term deposits, issuing short- and long-term paper in wholesale markets and through securitisation.

“Given interest rates are at record low levels, some of these funding sources are already at rates so low they can’t be repriced further downward. This impacts the rates banks set on loans they provide for mortgages and businesses,” he said.

Bendigo's new rates are effective 15 December for new and existing loans. 

[Related: Major bank raises rates for property investors]

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