>The National Australia Bank (NAB) has broken ranks with major banks and lifted its standard variable home loan by another nine basis points (0.09%). From Wednesday, NAB’s standard home loans will attract a 9.36 per cent interest as the bank seeks to cover the increased costs it is paying for wholesale funds.The move equates to about an extra $15 a month on an average $200,000 mortgage for NAB customers. It is a worry for the RBA (Reserve Bank of Australia), in terms on monetary policy control, when the big retail banks act independently of the RBA. The RBA sets the official interest rates, but it is the banks who execute the actual rate changes from a consumers perspective. So if the banks start going out on their own and changing interest rates, the RBA’s influence over monetary policy is greatly diminished.
NAB Australian head Ahmed Fahour said the latest rate hike reflected “sustained increases to short and long term wholesale funding costs”. The reason behind this is the US driven credit crisis which has increased the cost of funds to banks worldwide. However, don’t feel too sorry for the banks, they are just passing on their increased funding costs to their customers so that bottom line profits are protected. With inflation still running high in Australia, it looks like more interest rate rises are on the cards, so it wouldn’t surprise me to see a 10% variable home loan rate by mid-year.
I was talking to friends back in Sydney over the weekend about this topic and was surprised at the huge interest rate differential on home loans between Australia and the US. I know Australia’s official interest rates are higher than those in the US (which has lowered rates substantially to fight off a financial crisis), but I was stunned to here that home loan variable rates are at around 9.3% nowadays. They are about 6% here in the US for those with good credit. This is equivalent to $300 per/month differential on a $250,000 mortgage. On a more typical $500,00 mortgage in Sydney, it would equate to about $800 a month differential – a lot of money by any standards. If I return to Australia anytime soon, I should ideally get the loan for my Sydney property via a US bank – but unfortunately I don’t think the banks in the US would allow that!
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