Westpac Throws Out a Big Signal

Disappointing announcement today by Westpac that they will be raising rates by 20bps from November 20th.  Reasons given for this increase include their requirement to raise an additional $3.5 billion in equity to fund their existing loan book.  Full details of their statement can be found here.

Given Westpac’s position as a leading bank, and the strong in-advance price signal contained within their announcement, I fully expect that many other lenders (if not all!) will announce similar changes in order to maintain their relative market positioning, overall margins and capital funding requirements.  Second tier banks are not subject to capital re-rating but our experience so far this year is that they have taken up the opportunity to recover margins as their relative funding positions have improved.

For now, borrowers are well-advised to sit tight and see how the overall market develops over the next few weeks.  Whilst refinancing to another lender may be an option, in my view this is unlikely to achieve a better result in the short to medium term.

Apart from the fact that refinancing typically costs between $700 and $1,000, all major lenders have announced similar increases to rates as each other during the past 3 months.