What are the big four banks doing to investment loans?

In the second half of last year – and under the guise of a directive by APRA – most Australian banks increased mortgage rates “to offset pressure on margins being squeezed by regulatory changes, competition and slower economic growth”. Mmmm, by all accounts they’ve had a ripping good time with mortgage lending, in spite of their ‘slower economic growth’ spin.

Australia's big four banks dutifully ‘complied’ with these lending changes – possibly for the first time ever, taking APRA’s directive as a licence to make even more profit from their hapless clients.

In fact, one bank increased their rate for investors by 47 points, and applied that increase to every existing variable rate loan on their books! Disgusted, I took it upon myself to inform our clients about these unprecedented lending changes. Last August I hosted an exposé webinar – ironically titled ‘Banks Behaving Badly’ – and it was a rude awakening for most people.

But as the old cliché goes, “it ain’t over till the fat lady sings”.

It looks like the fat lady today is a collective term for the banks. They’re at it again! Right now they’re crying poor and increasing interest rates for some borrowers and on some loans.

They say it's because their cost of funds has increased. Glenn Stevens says otherwise. The RBA head issued a stern warning to the banks this week that their “out-of-cycle interest rate hikes” can’t be blamed on higher funding costs, claiming financial markets were overreacting.

Maybe, just maybe, the recent bank sell-off on the stock market is partly to blame? With corporate bonuses looking a little shaky, maybe those pesky bank executives need to create some ‘extra profit’?

Or maybe this is actually the beginning of the end for the big four – as far as the days of wallowing in their 'super profits' are concerned? One thing is for sure: there’s definitely a massive change headed our way.

ANZ and NAB both increased business loan rates over the past two weeks, while others lifted various residential rates this week – all of them partly blaming higher funding costs. Dig deep enough and – like last time – you'd most likely find it's about increasing their already-outrageous bottom-line profit.