The banks are rushing at the last minute to issue the $ 200 billion in emergency money the RBA gave them during the crisis, which will drive up fixed-rate mortgages.
But despite such increases, you could still be better off with a fixed rate loan, as these are significantly cheaper than the average variable rate loan.
“Fixed-rate loans have been the battlefield lately and will still be attractive after small increases like they have been recently,” said Steve Mickenbecker, group leader of the Canstar research group.
There are currently 179 home loans with interest rates below 2 percent, ”said Mickenbecker. “I would say 90 percent of that would be fixed prices.”
Three weeks ago $ 100 billion of that $ 200 billion which were made available to the banks as part of the Term Funding Facility (TFF) were not issued.
But the RBA Deputy Governor Christopher Kent said in a speech on Wednesday that there was now only $ 64 billion left and “we expect the majority of the funds available to be drawn” in the remaining window of time until the June 30 expiration date.
You have to move
That said, if you’re thinking about a rock-bottom fixed rate mortgage, now is the time to act. The reason is simple.
The TFF provides the bank with three-year loans at the lowest interest rate of 0.1 percent, which they can lend to homebuyers more cheaply than if they had to be taken out on the open market.
As the graph above shows, the TFF money banks borrow needs to be replaced with other sources of funding, such as offshore loans, for which they have to pay at least 0.5 percent.
The banks are already repositioning themselves for this reality.
In the past few weeks, “both CBA and Westpac have increased their two- and three-year rate fixes,” said Mickenbecker.
And while ANZ and NAB are yet to follow, IBG, AMP, and seven other smaller lenders have.
CBA raised interest rates by 0.05 percent, or five basis points, raising three-year fixed loans to 2.19 percent and four-year loans to 2.25 percent.
Westpac rose 0.1 percent and set the two-year interest rate at 1.99 percent and the three-year loan roughly the same.
It’s the environment
In addition to the TFF, other factors also play a role that drive fixed-rate loans up.
“It partly reflects the TFF, but in general it reflects the reality that we are getting closer over time when the RBA starts tightening policy,Said Sarah Hunter, Chief Economist at BIS Oxford Economics.
The RBA has announced that it will raise rates from 2024.
“Even the two-year interest rate is starting to drift upwards, so in about two years time the financial markets expect the RBA to start raising the cash rate,” said Dr. Hunter.
There will be more moves in the fixed-rate mortgage market, however these movements will not be too dramaticsaid Herr Mickenbecker.
“It’s still a very favorable funding environment for banks, even without a TFF,” he said.
“I don’t think it can be said that the 10 basis point movement in fixed rates is solely due to the impending end of the TFF – it’s just part of the mix – maybe a few basis points.”
Low is still low
So while all banks are likely to shift their fixed rate loans by a level similar to the 10 basis points of the ANZ and NAB, “I don’t think we’ll see the fixed rate going beyond that for a while,” Mickenbecker said.
Therefore, fear of missing out shouldn’t be the main reason.
“If it goes up 10 basis points and you set the rates 10 basis points above some of the lowest rates we’ve had in a long, long time, you’re still getting a pretty good rate,” Mickenbecker said.
“I don’t think there is any reason to panic.”
The fixed rate hikes are unlikely to come through short to medium term to flexible interest loans because they are funded from different sources, said Dr. Hunter.
“The winding up of TFF shouldn’t have an impact on floating rates as they are driven by very short-term rates and the RBA has announced that it will not raise the cash rate anytime soon,” she said.
“The variable standard interest rates are financed by the 90-day bank draft swap rate, so that these interest rates only look three months into the future.”
The variable interest rates should therefore remain at the current level, but at first glance they are still less attractive than fixed-rate loans.
“There are a few things to consider when it comes to fixed-rate loans,” says Mickenbecker.
“When the repayment period expires, many banks will convert you to their standard floating rate, which is higher than other deals you might get. So you don’t want to be lazy if the loan expires or you might end up paying more.
“You have to decide how long you want to go. If you opt for a shorter period of time, you may wish you had stayed longer if you switched to a higher-interest variable loan. “
And remember, while non-banks only have about 5 percent of the mortgage market, they can give you the best deal because they don’t have all of the expensive infrastructure that big banks do.
The Canstar chart above shows that non-banks can give you a floating rate mortgage with a 2 in front of it, while the larger banks give you a 3.