It finally happened. After months and months of record low interest rates and home loan rates, Aussie banks have started to increase their fixed rates on mortgages for two-year, three-year, four-year & five-year terms.
This is not a total surprise, as interest rates and fixed interest rates on mortgages have been very low for a long time in Australia. But the timing of the changes has caught the market slightly off guard, coming earlier than previously anticipated.
Banks are starting to raise rates
CBA has increased its four-year fixed rates by 0.50%. It now stands around 2.89%, having been as low as 2.14% in March. Increases have also occurred of between 0.25% to 0.40% for other fixed term mortgages. A CBA spokesperson stated that “these changes reflect the steep increase in funding costs over the past few weeks as well as upgraded economic forecasts. These changes are effective 5 November 2021.”
There have been increases in funding costs as the Central Banks globally begin letting interest rates rise as countries recover from the economic damage caused by the pandemic.
Westpac has also raised its three-year, four-year and five-year fixed rate by 0.21%.
Main factors driving the rate increases
- The market expects inflation to be higher and last longer in the Australian economy than previously predicted. As a result, the bond market has begun pushing interest rates higher, earlier, with bond prices falling the main driver of higher yields. This is happening globally, not just here in Australia.
- In Australia, the RBA has stopped its emergency COVID funding for lenders this year, allowing interest rates to move up to the market rates and not be artificially held low.
- The RBA is no longer pursuing Quantitative Easing. This is where the RBA buys back bonds, keeping the interest rates on bonds lower than if the RBA was not involved in the market. When the yield of the bonds go up, the funding costs for banks also rises, and these are now being passed on to consumers.
If you have a loan, what can you do?
- Review what you are paying in interest rates and make sure that your loan is competitive.
- Check the value of your home to see if you have moved into a lower LVR to possibly be able to unlock even better rates.
Buying property is one of the biggest money decisions you’ll make in your life, so put in the work to get it right. Get good help around you so you cover all your bases and can confidently buy property knowing you’re on the right track from the moment you make your purchase!
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