The Malaysian Reserve

Aussies warned to brace for costlier mortgages


SYDNEY • Australian homeowners may have to prepare for more expensive mortgages even as the nation’s central bank keeps official borrowing costs at a historic low.

Peter Costello, chairman of the A$146 billion (RM439.79 billion) Future Fund and a former Treasurer of Australia, said climbing funding costs offshore will spur local lenders to pass on some of those expenses to borrowers. This will happen despite tepid inf lation encouraging the Reserve Bank of Australia (RBA) to keep the official cash rate at a record low of 1.5%.

Westpac Banking Corp became the first major Australian bank to raise interest rates yesterday because of higher funding costs.

“Australian banks borrow a lot of money offshore and in particular in the US, and US rates are rising, so I think they’ll be looking to increase rates,” Costello said on a media call yesterday. “It’s important that monetary policy in Australia is still principally mediated by the RBA, but given the international pressures, yes, I think they’ll be looking at out-of-cycle rate increases.”

Costello’s views come as Australia’s bank profits face increasing pressure from a slowing housing market, rising overseas government bond yields that are pushing up debt fun-ding costs and heightened competition.

The nation’s biggest lenders, which are also facing a public inquiry into serious misconduct, are trying to simplify their operations and sell non-core operations to help boost their business.

“Some of the banks have behaved poorly,” Costello said of the public inquiry. “It’s clear that the people that were responsible for administering the banks probably haven’t done their jobs.”

The cost for Australian banks to borrow offshore has risen along with local bank-bill-swap rates. Libor, a key dollar-financing indicator, has also spiked this year, prompting banks in the South-Pacific nation to seek more funding at home and help push up local bond issuance.

Some Australian lenders including Macquarie Bank, Bendigo & Adelaide Bank Ltd and AMP Bank have raised mortgage rates this year.

While the challenges buffeting some lenders appear to be rising, Costello reckons a slowing housing market might be a “good thing”.

“Money is cheap and as we said before, that was putting asset prices up including house prices,” he said.

“Taking a little bit of heat out I think will be good.”

Costello’s comments were made after the Future Fund posted an annual return of 9.3% in the year ended June. The fund has returned 8.7% a year over the last decade, against a target benchmark return of 6.6%.

Westpac raised its key mortgage rate, the first of the nation’s biggest banks to decide passing on higher funding costs is worth the risk of further reputational damage.

Its variable standard home-loan rate for owner occupiers will rise 14 basis points to 5.38%, the Sydney- based lender said in a statement yesterday. The move reflects “a sustained increase in wholesale funding costs”, the bank said.