Kathryn Lee - 4 May, 2021

RBA rates remain steady, so why are fixed home loan rates increasing?

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The official cash rate will remain at 0.10%, following the Reserve Bank of Australia (RBA) meeting on monetary policy earlier today. It is the sixth consecutive month rates have remained unchanged.


The decision was not a surprise and reaffirms previous central bank rhetoric.

In the minutes of its April meeting, the board stated that it does not intend to increase the cash rate until key economic indicators are met – which it does not believe could happen until 2024.

“The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range,” the minutes read.

“For this to occur, wages growth would need to be materially higher than it is currently. This would require significant gains in employment and a return to a tight labour market.

“The Board does not expect these conditions to be met until 2024 at the earliest.”

Catch up on last month’s rate announcement: RBA Low Rates Remain Despite Surging House Prices

Interest rates on 4-year fixed home loans on the rise

Despite no upwards moves from the RBA in six months, the interest rates on some 4-year fixed rate home loan products are on the rise.

Over the past month, 14 lenders have increased the interest rate on 4-year fixed rate loan products. The list includes names such as Commonwealth Bank, Bank of Queensland, Teachers Mutual Bank, Bankwest, Bendigo Bank and Adelaide Bank.

According to research from RateCity, the average 4-year fixed owner-occupier principal and interest rate has increased 4 basis points since January, increasing to 2.54%.

RateCity research director Sally Tindall said it could be to do with the RBA’s term funding facility ending.

The RBA established its term funding facility last year to offer banks lower borrowing costs. The facility was launched as part of a package of measures to support the economy and is due to end on 30 June.

“With the RBA’s term funding facility now in its final stretch and the next cash rate hike firming up for early 2024, if not before, the writing is on the wall for ultra-low four and five-year fixed rate loans,” she said.

“Money might be cheap now but in a few years’ time it’s likely to be a very different story, provided the economic recovery stays on track.”

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What does this mean for borrowers and current homeowners?

Fixed rates have likely reached their lowest point and could see further hikes, according to ANZ senior economist Felicity Emmett.

“In the second half of the year these sub-2-per-cent, three-year fixed rates that we’re seeing advertised at the moment are less likely to be around [as bank funding costs rise],” she said.

“Cheaper funding is not available forever and that will feed through into variable mortgage rates too.”

For borrowers who have taken out a new fixed-rate loan or refinanced in the past six months, Ms. Emmett also said that it was likely rates could be very different when these terms end.

As the economy recovers, borrowers with fixed-term loans ending in May 2023 could face an environment with considerably higher fixed and variable rates.

“It will represent a tightening for people’s cash flows,” Ms. Emmett said.

“But keep in mind, in terms of people’s ability to afford these loans, that the banks still have lots of criteria around mortgage serviceability and there is the buffer there.”

You might also like: Why didnt the Australian housing market crash?

Words by Kathryn Lee

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