Have we reached the bottom of the interest rate cycle?

The cash rate may have been held for seven consecutive months, but this hasn’t prevented lenders from lifting mortgage rates independently of the Reserve Bank, with 11 lenders including two of the big four banks announcing rate hikes this month, according to finder.com.au 

A new analysis by the group reveals 11 lenders have declared rate rises for both variable and fixed home loans in March 2017. 

Of the big four banks, ANZ, NAB and Westpac have announced rate changes this year. While  ANZ and NAB announced changes earlier this year, Westpac soon followed suit announcing rate changes just this month.

In March alone, NAB announced further changes with increases to its interest rates from 0.07% - 0.25% for variable rate home loans, while Westpac also raised its variable rates from 0.03% - 0.28%.

Despite increasing its variable rate, NAB implemented a new incentive for first home buyers by introducing its lowest home loan fixed rate of 2 years at 3.69% per annum. Westpac is also providing a grace period until the 17th June by waiving the switching fee for interest-only home loans changing to principal and interest repayments.  

The average rate rise for owner-occupier loans in March 2017 across the big four that have adjusted rates (including NAB and Westpac) is 0.05%.

Taking this into account, a borrower with an average home loan of $357,200 with an average variable rate of 4.75% would need to pay an extra $11 per month if rates rose to 4.80%. This amounts to $3,881 over 30 years.

Graham Cooke, Insights Manager at Finder, says it’s not surprising banks are taking action and raising interest rates out-of-cycle.

“It’s been relatively quiet on the cash rate front in recent months, and with many believing a rate rise won’t occur until next year, it was only a matter of time before lenders started raising home loan rates out-of-cycle.

“Whether it’s to increase flexibility or boost profit margins, banks are under fire to manage stakeholder expectations while also dealing with the risk of an overheated property market.

“For investor loans, more stringent regulations imposed by the Australian Prudential Regulation Authority (APRA) to curb investor lending may be prompting banks to up interest rates.

“Given recent rate increases, both owner occupiers and investors need to prepare for higher loan costs. It’s sensible to factor in 2-3% on top of your current mortgage repayments so you can cope with unexpected rate rises.

“Depending on your circumstances, you may want to consider fixing a portion of your loan in anticipation of rate rises,” he says.

Mr Cooke says borrowers should use this time to review their loan and communicate with their bank regarding any changes.

“Banks have a responsibility to notify you of any rate changes, but if there’s been radio silence, jump online or pick up the phone to see if your rate will change.

“If your interest rate is going up, consider whether you can afford the increased cost of borrowing over the remainder of your term. If you don’t think your new rate is competitive, consider refinancing to a new lender.

“However, before you switch, forecast your switching costs such as any fees charged by your existing lender as well as any establishment costs charged by the new provider,” he says.


Variable home loan rate changes for March 2017

Fixed home loan rate changes for March 2017

Source: finder.com.au