John Collett| Sydney Morning Herald| 19 October 2021
Any doubts that the best is over for fixed-interest rate mortgages were quashed last week when the Commonwealth Bank increased its longer-term fixed rates – a move quickly matched by Westpac.
CBA did cut the interest rate on its lowest variable-rate mortgages by 0.4 percentage points – to 2.29 per cent – but only for new customers with a deposit of at least 30 per cent. It also cut its 1-year fixed rate.
The moves signal that Australia’s biggest banks are expecting a rise in their funding costs within the next two years, despite the Reserve Bank of Australia (RBA) repeatedly saying that it does not expect to start increasing the cash rate until 2024, at the earliest.
“These fixed-rate hikes suggest the days of ultra-cheap funding could be numbered,” says Sally Tindall, research director at RateCity.
“While the RBA is insistent the next rate hike won’t be until at least 2024, the banks are anticipating an increase to the cost of funding once borders reopen and the economy rebounds,” she says.
There has been a big lift in inflationary expectations, with consumers forecast to demand higher wages and businesses increase the prices of their products and services.
With the latest lockdown in NSW now ended and the resumption of international travel to begin November 1, spending in cafés, restaurants, retail outlets and airlines is set to surge.
With Victoria not likely far behind NSW in opening up, the banks are likely going to need to pay higher interest rates to attract savings.
Most rate cuts from lenders in recent months have been to their variable interest rates and one-year fixed terms, with higher rates on their 2, 3, 4 and 5-years mortgages.
The best variable mortgages rates are being offered to new customers and to borrowers that lenders assess as having a low risk of defaulting. They include people looking to refinance who have substantial equity in their homes.
RateCity figures show there are still some attractive fixed-interest deals on offer, particularly for borrowers with a good deal of equity in their homes who have well-established repayment records.
However, fixed-rate mortgages have a downside. Many do not have attached mortgage offset accounts, where significant savings can be made.
Money held in an offset accounts reduces the overall debt and the interest paid.