Don’t miss out on these ultra-low rates

The era of ultra-low fixed interest rates in Australia might be coming to an end as the last bank with a sub-2 per cent long-term rate has hiked theirs above that symbolic mark. And Australians are being warned not to miss out on some of these great deals.

Some of the longer-term fixed rates, often four and five years, are now starting to creep higher.

Previously, 32 lenders had long-term fixed raates beneath 2-per cent, including all the Big Four, but all have raised their rates in recent weeks.

CBA were the major mover in the market, hiking their four-year rate at the same time that they lowered their two-year rate. They then upped their three-year and four-year rates at the end of May, signalling to the market that Australia’s biggest bank were anticipating a higher price of doing business in the middle-to-long term.

The main driver of this is the fact that the ultra-low rates the Reserve Bank is lending to Australia’s banks are coming to an end.

At height of the Covid pandemic, the Reserve Bank announced a $200bn Term Funding Facility (TFF) – in effect a war chest of money it could lend to the banks at 0.1 per cent.  This dramatically changed the way Australians borrowed money. But, slowly, as we start returning to normal, the TFF is being wound back with consequent implications for borrowers.

Traditionally, the banks raise around $100 billion a year in wholesale funding from foreign and local investors but, due to the cheap money of the TFF, that reduced sharply to about $5 billion in the local market and $15 billion internationally.

As, the TFF is wound back, the return to normal may catch some borrowers unaware.

Fixed loans now represent about 35 per cent of all new mortgages. That represents a more than doubling of the level of fixed loans compared to before the pandemic as home buyers locked in loans, sometimes, below two per cent.

The Reserve Bank’s withdrawal of the TFF will mean the banks will be forced to source finance from the more expensive wholesale funding – with a consequent rise you and I pay for our home loans.

Rates will stay low for quite some time, but if you want to make the most of these ultra-sharp rates, now maybe time to talk to your broker about locking in a fixed rate.

There are some loans on the market with a rate less than two per cent – but who knows for how much longer.