NAB is raising interest rates for new loans. Picture: Hollie Adams/The Australian
NAB is raising interest rates for new loans. Picture: Hollie Adams/The Australian

NAB raises interest rates for new borrowers

NAB is finally increasing its interest rates - but only for new borrowers.

On Monday, NAB announced it would be changing the special offer on its base variable rate, available for new owner occupier principal and interest customers, from 3.69 per cent to 3.87 per cent.

The change, which comes into effect from this Friday, November 9, reduces the discount on the advertised rate from 48 basis points to 30 basis points. It will only affect new customers taking out the product.

The announcement comes nearly two months after the fourth-largest lender said it would not join the rest of the Big Four in raising mortgage rates in a bid to "rebuild trust" with customers.

Comparison website RateCity said the move signified a "baton change" between the big lenders, with CommBank set to have the lowest ongoing variable rate from Friday.

CommBank offers 3.79 per cent for customers with a 70 per cent loan-to-value ratio. ANZ and Westpac are currently offering 3.81 per cent and 3.98 per cent respectively.

"Over the last six months NAB has been a champion of competitive pricing, forcing other lenders to put low rates on the table," research director Sally Tindall said in a statement.

"This decision sees them pull up stumps in the low-rate market, which is disappointing. That said, by not changing the rate for existing customers, NAB is staying true to its commitment to build trust."

Ms Tindall noted it was "rare to see a bank hike an interest rate but grant immunity to their existing customers".

"NAB is clearly focused on backing its own customers, over potential new ones," she said.

"If you live in the home you own, and you are paying down your debt and have a decent deposit, there are plenty of rates available below 3.8 per cent."

Despite the Reserve Bank keeping the official cash rate on hold at its record low of 1.5 per cent for more than two years, Australia's banks largely rely on overseas money markets to fund their loan books.

The US Federal Reserve has been steadily raising rates as the economy there improves, increasing borrowing costs for Australian banks.

The smaller lenders had gradually been raising rates but it was Westpac that blinked, becoming the first of the Big Four to hit borrowers with out-of-cycle increases in September, followed quickly by CommBank and ANZ.

The cash rate hasn't moved since August 2016, after an earlier cut to 1.75 per cent in May. There has not been an official cash rate increase since November 2010.

Bank profits have taken a battering this reporting season amid a slowing housing market, tighter lending conditions, the fallout from the banking royal commission and other scandals.

CommBank's profit was down 4.8 per cent to $9.233 billion, ANZ's profit was down 5 per cent to $6.487 billion, NAB's profit was down 14 per cent to $5.7 billion and Westpac's profit was flat at $8.07 billion.

CoreLogic data released last week showed house prices in Sydney fell by 7.4 per cent in the year to October, the fastest annual decline since 1990. Nationally the decline was 3.5 per cent, signalling the weakest conditions since February 2012.

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