The big, bad 4

Precisely a week ago, Mozo HQ was braced for another rate cut by the RBA and with it a hectic period of rate chasing as the banks reacted.

And we weren’t alone – of the 27 economists polled by Bloomberg, only 3 correctly predicted the result.

So when we had expected to be reporting on which banks played nice and passed on the rate cut, or who did the dirty and didn’t, we are instead reporting on a much more concerning turn of events.

Starting with ANZ and Westpac on Friday, then yesterday with CommBank and finally NAB, all of the Big 4 banks have increased their standard variable home loan rates.

ANZ had been threatening to act independently of the Reserve Bank for some time, but never ones to miss an opportunity, the rest of the big boys were quick to latch onto the coat tails of trailblazer ANZ.

Here’s the breakdown of the changes

Bank Old rate New rate Increase Cost p.a.*
ANZ 7.30% 7.36% 0.06% + $144
Westpac 7.36% 7.46% 0.10% + $228
CBA 7.31% 7.41% 0.10% + $228
NAB 7.22% 7.31% 0.09% + $204

*Based on $300,000 loan balance repaid over 25 years

In the face of record profit announcements from ANZ – and similar from the rest of the Big 4 – these rate increases are particularly hard to stomach, but at least there is a ‘plausible’ explanation.

According to the banks, the main factor leading to the rate increases is the cost of overseas funding, which is becoming more and more expensive as the “price” of bank debt reacts to global volatility. As the RBA-set cash rate is only a (small) part of the bank’s funding composition, the price hike is viewed as necessary (lest the profit margins be eroded!).

Add to that slowing demand from borrowers, who themselves are playing things safe at present, and home owners are basically up the proverbial creek.

In a further signal of troubling times, ANZ announced yesterday the cutting of 1,000 jobs by the end of 2012, which adds to the 560 jobs Westpac expects to shed in the same period.