- 27 May, 2021

Borrowers Rush to Lock In As Banks Raise Fixed Rates

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Australian homeowners are scrambling to lock in as banks and lenders begin to raise their fixed rates for the first time in 2021.

While the official RBA interest rate is still at a record-low level of 0.10%, raising long-term fixed rates could also signal that the days of securing the lowest-ever home loan rates may be a thing of the past in the not too distant future.

The move to raise fixed-term rates has surprised many, and borrowers who prefer them over variable options are running out of time to lock-in.

In recent weeks, Westpac has pulled the lowest four-year fixed-rate off the market in a move that also affects their subsidiaries such as St George, BankSA, and Bank of Melbourne. This leaves NAB as the only Australian bank with a four-year fixed loan rate available under 2%.

Such increases suggest that banks are preparing for home loan rates to rise back to pre-pandemic levels rather than fall again, as the Australian economy continues to bounce back.

This thinking aligns with the Reserve Bank of Australia (RBA) governor Philip Lowe comments that Australia’s economic recovery from the coronavirus pandemic had been stronger than expected.

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“Housing markets have strengthened further, with prices rising in most markets. Housing credit growth to owner-occupiers has picked up, with strong demand from first-home buyers,” Lowe said.

Lowe also stated that the Reserve Bank plans to monitor market trends in the coming months before deciding on their next move.

“Given the environment of rising housing prices and low-interest rates, the bank will be monitoring trends in housing borrowing carefully, and it is important that lending standards are maintained.”

The Reserve Bank has previously said that interest rates will stay low until 2024, but AMP chief economic officer Shane Oliver believes that a rate hike could happen before then, which would affect both current borrowers and people looking to buy a new home.

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“While the economy is recovering faster than expected, the RBA is still a long way away from seeing its stated requirements for a rate hike, being a tight jobs market, wages growth well above 3% and actual inflation sustainably within the 2% to 3% target range. So a rate hike is still a fair way off, although I think it will come before the RBA’s expectation for 2024 at the earliest.”

These comments hint that locking in a long-term fixed-rate even after their recent rises could provide extra peace of mind while the uncertainties surrounding rate rises heat up over the coming months.

Amidst the talk of rising loans is the elephant in the room: Australia’s record property prices.

The rise of ultra-cheap fixed rates in part fueled a rush to the property market in the last half of 2020 to send home values soaring.

The banks have made their intentions known by raising long-term fixed rates, so although loans could be more expensive, there could also be some price corrections to help buyers, even if supply levels remain low.

CoreLogic Australian head of research Eliza Owen believes that speculation is

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mounting about whether an increase in home loan rates for fixed and variable customers would cool off Australia’s record-breaking property market.

“We’re in these uncharted waters of Australian dwelling values at a record high and continuing to rise. We can’t predict the future, but there is growing consensus a likely change in the current property environment would be rules around lending”, Owens said.

People are going to come against affordability constraints, particularly first-home buyers, and there’s got to be a cap on someone’s willingness to pay, even in an environment where there is relatively little supply”.

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Words by Rimas Veselis

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