National Australia Bank Ltd (ASX: NAB) has moved to increase interest rates on investor home loans from December 12, 2016.
It's yet another sign that interest rates have bottomed and started rising – so mortgage holders need to consider how they can cope with higher interest rates. And that's whether or not they are property investors or owner-occupiers.
NAB will increase variable interest rates on its home loans by 0.15% from next Monday, December 12, taking the standard variable rate for Residential Investment Home Loans to 5.55% per annum. The standard variable rate for owner-occupiers remains at 5.25% and is not changing – yet.
NAB's chief operating officer Antony Cahill said in a statement, "As was evident during the recent bank reporting season, net interest margins – the difference between what we pay to borrow funds to lend to our customers and what our customers pay – are down, particularly in home lending, and they remain under pressure."
"A low-rate environment poses considerable challenges to all lenders, and we must respond to what is happening in the economy and the market. In doing so, we have to consider a range of factors including the ongoing need to hold longer-term stable sources of funding, continued elevated funding costs, regulatory requirements, and the competitive pressures at play."
Banks have been increasing their fixed-term interest rates in recent months, but this appears to be the first time a major bank has raised its variable rates on mortgages.
The big four Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), NAB and Westpac Banking Corp (ASX: WBC) all tend to offer similar rates on their home loans, so it wouldn't surprise me to see the other three follow the NAB's lead and increase rates on their residential investor property loans.
It might not be long before owner-occupiers also face similar increases.
However, borrowers and homeowners should consider that many smaller banks and non-bank lenders are offering much lower interest rates on mortgages, including some under 4%. Compare that to the more than 5% that the big four banks offer on their standard variable rate loans.
Foolish takeaway
I wrote in early November that borrowers might want to consider switching some or all of their home loan to a short-term, fixed rate loan to lock in low interest rates currently available. Today's move by NAB makes that even more important.
