Investor loan re-pricing to give a solid boost to bank earnings

Commonwealth Bank's re-pricing of its investor loan book, which was announced on Friday, will boost earnings by 2.1 per cent in the 2015/16 financial year, according to an analyst's estimate.

CBA will increase the variable rate on residential property investment loans by 27 basis points to 5.72 per cent. Fixed rates will rise by between ten bps and 40 bps.

The bank has cut fixed rates for owner-occupiers. There is no change to the standard variable rate for owner-occupiers.

On Thursday ANZ announced that the variable rate on its Residential Investment Property Loan would rise by 27 basis points to 5.65 per cent. Fixed rates will rise by 30 basis points, with the three-year rate rising to 5.14 per cent and the five-year rate to 5.04 per cent.

The banks are responding to a push by the Australian Prudential Regulation Authority to limit the growth in investor lending. They are also facing the introduction of higher capital costs in future.

Macquarie Securities said ANZ's re-pricing would add 1.6 per cent to its earnings in 2015/16.

Macquarie said that if National Australia Bank and Westpac followed suit they would add 1.6 per cent and 3.1 per cent respectively to earnings.

Westpac would get the biggest boost because it has the highest proportion of investor loans. Forty-six per cent of its mortgage book is investor lending, compared with 40 per cent for ANZ, 36 per cent for CBA and 29 per cent for NAB.

"While there may be some volume slowdown, that is the intention and all banks need to slow investor lending to ten per cent," Macquarie said in a note to investors.

Macquarie predicted that a mortgage re-pricing cycle was about to get underway.

Fairfax Media reported that CUA and Heritage Bank have also raised their investor loan rates and that Macquarie Bank was contacting brokers on Friday to inform them that its investor loan rate would be going up.