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Suncorp and Adelaide Banks are blaming “challenging” market conditions for raising variable rates across their range of investor and owner-occupied mortgage products by up to 40 basis points.

The move closely follows Westpac Group’s decision to raise variable rates by 14 basis points and will fuel heated market speculation that other majors will follow with out-of-cycle rate rises to cover increased capital costs.

Rising rates on the eve of the spring real estate season, traditionally the busiest period for sales, is also expected to subdue already sluggish clearance rates amid growing home buyer and investor fears of more increases, particularly in Melbourne and Sydney.

Bankers are warning that rising funding pressure is also putting pressure on commercial and agribusiness lending costs.

Adelaide Bank is increasing rates for eight products covering its range of principal and interest and interest-only owner-occupied and investor products.

Principal and interest-owner occupied and investment variable loans will be increasing by 12 basis points.

Interest-only owner occupied and residential investment loans will rise by 35 basis points and 40 basis points respectively.

The increases will apply from September 7.

Interest-only investment loans settled before January 1 will be increased by 12 basis points.

Business loan pressure

Suncorp is raising interest rates on all variable rate home and small business loans from September 14.

All variable rate home products will rise by 17 basis points and small business will rise by 10 basis points.

Westpac’s 14 basis point rise earlier this week could become a defacto benchmark for a new round of rises, according to analysts.

The variable rates are increasing despite the Reserve Bank of Australia holding the cash rate at 1.5 per cent.

An Adelaide Bank manager said “the current environment is challenging for all”.

Suncorp banking and wealth chief executive David Carter blames the increase on a “sustained increase in funding costs”.

Mr Carter said it started warning about rising funding costs in March.

“Since then we have also witnessed a change in outlook for the RBA’s cash rate, with movement now not expected until well into 2019. This means the gap between the cash rate and the BBSW (bank bill swap rate) is likely to remain elevated for longer than we predicted six months ago,” he said.

Mr Carter warned that commercial and agribusiness rates are also under pressure.The bank bill swap rate increased by about 25 basis points between February and March and has remained elevated.

“They have not been impacted by the changes announced today, but their rates are linked to the BBSW and therefore are already experiencing the impact of rising wholesale rates,” he said.

He added that saver rates are up more than 20 basis points on average.

Lenders are facing higher funding costs because of rising secured and unsecured funding spreads, a wider spread between the US and Australian dollar and rising bond yields.

More rises to come

Earlier this month Adelaide Bank made a grab for market share by slashing rates for new borrowers by up to 101 basis points in response to big cuts for new borrowers from CBA, ANZ and Suncorp.

The group’s recent results revealed it had expanded net interest margins, a key driver of earnings, by pushing up rates for existing borrowers and lowering them for savers.

Analysts claim banks generally follow each other in out-of-cycle repricing, particularly in the current funding market.

But the major banks are under intense public and regulatory scrutiny following revelations about shoddy practices during the royal banking commission.

That means they could vary the timing and mix of rate increases to minimise any public or political blowback.

Leading politicians, including Prime Minister Scott Morrison, are already encouraging borrowers to shop around for cheaper fixed rates.

There are more than 670 owner occupied and about 630 investor fixed rates on offer.

Lowest two-year fixed rates range from Tic:Toc Home Loans two-year owner-occupier headline offering of 3.64 per cent through to Newcastle Permanent’s rate of 3.69 per cent.

Lowest three year rates range from East Street Financial Services headline rate of 3.69 per cent and Newcastle Permanent’s 3.74 per cent.

“Adelaide and Westpac’s rate increases will give other banks a justification for a rise of that magnitude,” said Steve Mickenbecker, Cansta’s group executive financial services.

This article was originally published by the Australian Financial Review. Read the original article here, or follow the AFR on Facebook.

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