The Big Four Banks in Australia have decreased the variable rates on their mortgages in a bid to win some market share. The move comes ahead of strong anticipation of the Reserve Bank interest rate rise in June.
On Thursday, Westpac cut its lowest variable rate to 2.09%, followed by the Commonwealth Bank reducing the lowest variable rate by 0.1% to close at 2.19%. Although it is clear that banks are also looking for lower-risk borrowers as the new rates only apply to aspiring homeowners who can contribute a deposit amount of at least 30%.
The deposit requirement for St George and Bank of Melbourne is even higher at 40%, with the variable interest rates at 2.04% for borrowers.
The variable rate changes are not limited to the big four banks, and competition seems fierce throughout the market. As many as 35 financial lenders are now offering variable rates below 2%.
And this is just one half of the story.
On the other end of the spectrum, fixed rates have risen substantially. For instance, the Westpac Group has increased its 1-5 year fixed rates by as much as 0.30% for owner-occupiers and investors alike. This is a jaw-dropping increase of 2.10 percentage points in just eleven months as Westpac’s 4-year fixed rate for owner-occupiers now hovers around 3.99%, up from 1.89% in April last year.
Westpac Home Loan Rate Changes
Commonwealth Bank also increased the three-year fixed mortgage rate to 3.79%, up from 3.49%. This is more than 1.5 percentage points higher than the variable rate.
This comes as a surprise as just 6-7 months back, the three-year fixed home loan rates of the big four banks hovered in a relatively comfortable region of 1.98 % to 2.19 %. Now, the same rates lie between 3.59 % and 3.79 %.
Why Are The Rates Surging So Much?
To combat higher inflation, traders anticipate that central banks are set to implement aggressive rate-rising cycles. As a result, 3 to 5-year-old bond rates have surged, leading to hikes in interest rates. The surge in 3-year bond rates has been eight-fold to close at 2.29%. Thus, this has forced banks to match the terms of fixed-rate loans. This also indicates that it is only so long before variable interest rates also rise.
There are concerns that both existing and new mortgage payers are set to suffer as they cope with the unprecedented increase in interest rates. Graeme John, Head of Growth at Joust, explains, "What we're seeing now is a repricing of the market, where people who were getting 2% back in September are now being offered 5-year rates of 4.2%. That's an incredible increase, and it will seriously impact borrowers."
If you are an owner-occupier with a mortgage, you must review your loan agreement and speak to your lender as soon as possible. Given the current market conditions, there is a genuine chance that your variable interest rate could be increased in the near future.
However, if you are an aspiring home investor, it is even more vital for you to stay ahead of the game. With the market conditions changing rapidly, you must lock in favourable fixed interest rates sooner rather than later. Thus, the entire gamut of your loan repayment cycle comes down to your interest rate.
The Positives
Last week, Phil Lowe, the governor of Reserve Bank, shared that the median borrower in Australia is a staggering 2 years ahead on their mortgage payments. This figure has doubled from 2018, when the median borrower was only one year ahead. The reason for this shift can be attributed to the $250 billion that households had saved in their offset accounts, mainly during the pandemic.
“That’s not to say there aren’t going to be problems, especially if interest rates have to go up by a large amount, but the buffers in the system have been built,” Phil Lowe opined.
How Joust Can Help You Lock Low-Interest Rates
If you're an existing borrower, it is essential to stay in close contact with your lender. They may be able to offer you a product that can help to ease the burden of increased rates.
But if you are yet to take out a mortgage, there are still some good deals out there, but you'll need to act fast. Do your research, compare products and get expert advice to ensure you're getting the best value for your needs.
That's where Joust can help. Our tech-enabled platform lets you compare a wide range of home loans from Australia's leading lenders, so you can be confident that you're getting the best deal possible. Armed with a transparent online process that makes lenders compete with each other to fulfil your loan, you get the best possible deal, potentially saving you thousands of dollars.
