Banks Raise Fixed Rates As RBA Rise Speculation Rises

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A growing list of lenders is increasing rates on three-year fixed home loans despite the Reserve Bank keeping the cash rate on hold today.

The tide is also starting to turn for fixed two-year rates, with more lenders increasing than cutting last month.

This trend is expected to continue now that the RBA Term Finance Facility has ended. There is also growing speculation that the next spot rate hike could come as early as the end of 2022.

Analysis of the RateCity.com.au database shows that over the past month, 19 lenders increased by at least one three-year fixed rate, including Westpac and NAB, and 17 lenders increased by at least a fixed rate over two years.

Lenders who have changed at least one rate in the past month

Lenders who cut Lenders who have increased Current lowest rate
1 year fixed 13 11

1.67%

2 years fixed 16 17

1.78%

3 years fixed 15 19

1.79%

4 years fixed 3 14

2.14%

5 years fixed 7 18

2.24%

Variable 25 4

1.77%

Source: RateCity.com.au. Note: A number of lenders have changed the rates for several home loans.

RateCity.com.au’s research director Sally Tindall said fixed rates are likely to continue to rise now that the RBA’s term finance facility has ended.

“The RBA’s term finance facility was helping banks put rates below 2% on the table. We expect more rates to rise now that this ultra-low funding source is closed, ”she said.

“There are still 38 fixed three-year rates below 2%, but they are unlikely to last. In a few months, they could be gone.

“That said, there are still 189 home loans below 2%. They are not all going to disappear overnight, ”she said.

Anticipated increase in cash rates a possibility

Ms Tindall said that while there was a chance the low-rate honeymoon could be cut short by the RBA, it was unlikely to happen anytime soon.

“The board has not ruled out the possibility that the next spot rate hike will come sooner than expected. Governor Lowe said it was unlikely to be before 2024, but in saying this he left the door open for it to happen sooner, ”she said.

“The RBA has made it clear that any decision to raise the cash rate is not dictated by timing, but rather by the progress our economy is making. Despite the current wave of lockdowns, so far that progress has been remarkable.

“If the RBA decides to increase the cash rate before 2024, it won’t be rushed work. The central bank will give mortgage holders sufficient notice. The last thing the country needs are people who default on their home loans, ”she said.

Fixed rate time bomb

Australians have enjoyed mortgage rates below 2% for just over a year now. Despite the increases, there are still 189 rates below 2%, the majority of which are fixed rates.

However, when these fixed rates end, the landscape will likely be significantly different.

For example, if the average mortgage holder with a loan of $ 500,000 fixed with a major bank for two years at 1.94 percent, at the end of the fixed term, he would face a rate of. average return of 3.43 percent, which would see their monthly repayments increase by $ 368. This rate of return could be higher if variable rates increase before July 2023.

Even if the person has renegotiated or re-fixed their mortgage, it is likely that they will be offered much higher interest rates.

Today July 2023 Difference
Average Big 4 rate

1.94%

3.43%

1.49%

Monthly repayment

$ 1,833

$ 2,201

$ 368

Note: Based on a 30-year, $ 500,000 homeowner loan with payment of principal and interest. Assume the rate of return stays the same.

How can borrowers prepare for the rate hike?

  • Do not bite more than you can chew: Banks test your loan but make sure you do the same. Make sure you’re comfortable paying the mortgage if rates go up 2.5% or more, and even more if you have a fixed rate.
  • Make additional refunds: Every additional dollar you put into your loan now is a dollar less than you will have to pay in interest when rates rise. If you have a fixed rate and you exceed the additional repayment limit, consider putting the money aside in a savings account so that you are ready for the end of your fixed term.
  • Set a reminder to refinance: If you have a fixed rate loan, write down the end date and look for a better deal at the end. If you are at variable rate, take a health check of your mortgage at least once a year.

Lowest rates from RateCity.com.au database

Lender Rate
1 year fixed BCU

1.67%

2 years fixed BCU

1.78%

3 years fixed Credit Union SA

1.79%

4 years fixed Teachers’ mutual

2.14%

5 years fixed UBank

2.24%

Variable Reduce home loans

1.77%

Note: Rates are for homeowners paying principal and interest. Certain LVR requirements apply.

The Big Four Banks’ Lowest Rates for Homeowner Home Loans

ABC Westpac NAB ANZ
1 year fixed

2.09%

1.99%

2.09%

2.04%

2 years fixed

1.94%

1.89%

1.99%

1.94%

3 years fixed

2.19%

1.98%

2.08%

2.04%

4 years fixed

2.24%

2.19%

2.24%

2.49%

5 years fixed

2.99%

2.49%

2.49%

2.69%

Variable

2.69%

2.19% for 2 years then 2.69%

2.69%

2.72%

Note: Westpac rates are a loan to value ratio of up to 70%.


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