ING and Bank of Queensland raise borrowing rates again

LONDON: Two of the nation’s most popular banks for borrowers are increasing variable mortgage rates by up to 15 basis points in response to rising wholesale funding costs.

ING, the nation’s fifth largest home loan lender, is announcing the third round of rate rises in seven months.

The bank is increasing variable home loan rates by 15 basis points for new and existing variable home borrowers from February 7.

ING, the nation’s fifth largest home loan lender, is announcing the third round of rate rises in seven months. AP

It raised variable rates for owner-occupier borrowers by 10 basis points last July and 15 basis points for investors in September.

Sally Tindall, research director at RateCity.com.au, said: “The cost of funding pressures are real and here to stay, and we expect more lenders to follow.”

Bank of Queensland, one of the nation’s major regional banks and listed on the ASX, is increasing one year fixed rates by 10 basis points to a headline rate of 4.09 per cent for owner-occupier principal and interest borrowers.

But two and three-year fixed rates have been reduced by 10 and 3 basis points respectively.

In addition, two and three-year fixed rates for principal and interest investors have also been cut by 10 basis points to headline rates of 4.29 and 4.39 per cent respectively.

The new rates are only for new borrowers seeking a minimum of $150,000.

Bank of Queensland last June increased variable home loan rates for interest-only owner occupiers and investors by up to 15 basis points.

The margin between variable and fixed rates has been widening during the past 12 months because of changing wholesale funding markets.

That reflects a decline in bond yields which drives the cost of funding for fixed rate loans but a rise in bank bill rates which has affected the cost of funding for variable rate loans

For example over the last 12 months the 10-year bond yield has fallen from 2.85 per cent to 2.2 per cent and the two-year bond yield from around 2 per cent to 1.76 per cent.

But the three-month bank bill rate has gone from just below 1.8 per cent to around 2.08 per cent.

The RBA will meet for the first time this year next Tuesday against a backdrop of falling property prices, weakening borrower sentiment and a mixed range of forecasts as to whether it will lower or raise cash rates.

Rate hikes and incentives for new borrowers is expected to increase the number of borrowers switching lenders.