Mortgage rate rises out of sync

National Australia Bank yesterday opted to prioritise management of its reputation over management of its margin in the domestic market, and said it will increase its standard variable home loan rate by 0.25 basis points, in line with this week's rise in the cash rate.

Westpac on Wednesday announced an increase of 45 basis points, a decision made public promptly after the RBA announced its own decision on the cash rate.

The presumption that other banks would follow Westpac (even if not by the full 45 basis points) was obviously shaky. One media outlet, the Financial Review, at one stage yesterday reported that ANZ was planning to increase home loan rates by 50 basis points, though ANZ is still to announce its decision.

NAB has set out over recent months to take pricing and product decisions that will help the bank generate market share growth in key retail product segments.

The bank surprised its peers with the elimination of many penalty fees on retail and business banking accounts, a decision announced in the middle of the year and implemented recently.

It is not so long ago that NAB, rather than Westpac, was taking its turn as the punching bag of the banking sector.

Eight months ago NAB pocketed all the notional gains from a cut of 25 basis points in the cash rate steered through by the RBA in April 2009.

NAB then, like Westpac now, produced a longer-than-usual media release featuring a series of charts on trends in cost of funds.

On that occasion most banks took advantage of NAB's lead and announced only very small cuts to home loan rates. Some, such as Bendigo and Adelaide Bank, took the same stance and did not cut rates at all.

NAB, like ANZ, has missed most of the surge in home lending over 2009 that Wetpac and CBA have enjoyed.

In taking the apparently popular stance on this occasion NAB may also be looking to support its newly acquired Challenger Mortgage Management business with more competitive rates.

NAB has already begun direct funding of loans marketed by its portfolio of aggregators, Choice, Fast and PLAN.