Saturday, June 13, 2009

Enjoying that low mortgage rate?

Saviour it while you can

The Commonwealth Bank is to lift all of its key mortgage rates amid signs that the global economy is recovering faster than anticipated.

The International Monetary is understood to have lifted its forecast for global growth next year from 1.9 per cent to 2.4 per cent signalling a faster recovery than had been expected and a swifter return to higher interest rates.

From Monday the Commonwealth Bank will lift each of its variable mortgage rates 0.10 percentage points because of what is says are increasing costs, in a move that has left Treasurer Wayne Swan "furious".

Mr Swan late yesterday phoned the bank's chief executive Ralph Norris to express concern, telling a press conference later the move would "get in the way of the rate relief needed to stimulate our economy and support jobs"...

The increase will push up the Commonwealth's standard variable rate from 5.64, at present the lowest of the big four banks, to 5.74 per cent, matching what is at present the second-lowest rate charged by the National Australia Bank.

A customer with a $300,000 Commonwealth mortgage will be required to pay an extra $18 per month. However the bank says most of its borrowers are already paying more than is required and so will not need to lift their repayments.

The new rate will remain the lowest offered a major bank. The ANZ and Westpac each charge a higher 5.81 per cent.

The consumer organisation Choice conceded that the Commonwealth Bank had "a good case" in an environment where borrowing costs were climbing.

"They've stuck their head out and said they've held off as long as they can, we appreciate that," said spokesman Elise Davidson. "However them going forward and taking a hit makes it more likely that the others will move to do the same."

Wayne Swan labeled the Commonwealth's decision "selfish," noting that the banks had benefited from the government's deposit guarantee.

"There are few decisions I can think of more selfish than this one," he declared while declining to outline what he had said to the Bank in private.

The Commonwealth Bank said it would not respond to Mr Swan's public comments, claiming that it's customers had benefited from the lowest rate of the big banks for some time and would continue to do so.

"Our customers are unlikely to switch," said spokesman Bryan Fitzgerald.

"Our long-term debt is expiring. It is costing us significantly more to roll it over."

The Commonwealth Bank's share price jumped on the announcement, climbing 36 cents to $37.80. The ANZ, National Australia Bank and Westpac responded saying they too were reviewing their rates.

Macquarie Bank analyst Rory Robertson said if the other banks did follow suit and unemployment kept rising, pressure would build on the Reserve Bank to cut official rates further.

"This reinforces the story that the likely next move in the Reserve Bank's cash rate is likely to be down not up," he said.

The IMF is expected to officially update global growth forecasts next month.

Housing Funding Costs