Mortgages got dearer throughout 2017

Mortgages got dearer throughout 2017

Home loan interest rates have risen steadily throughout 2017 – even though the Reserve Bank hasn’t increased the official cash rate since 2010.

This increase in interest rates has occurred for both owner-occupiers and investors, and for both variable loans and fixed-rate loans, according to an analysis of the 4,000-plus loans listed on RateCity.

On 1 January, the average variable rate for owner-occupiers was 4.32 per cent. By 1 December, it had climbed to 4.47 per cent – an increase of 15 basis points.

Date Rate
1 January 4.32%
1 February 4.35%
1 March 4.35%
1 April 4.37%
1 May 4.39%
1 June 4.41%
1 July 4.44%
1 August 4.46%
1 September 4.47%
1 October 4.46%
1 November 4.45%
1 December 4.47%

During the same period, the average variable rate for investors rose from 4.59 per cent to 4.93 per cent – an increase of 34 basis points.

Date Rate
1 January 4.59%
1 February 4.61%
1 March 4.62%
1 April 4.67%
1 May 4.74%
1 June 4.78%
1 July 4.84%
1 August 4.89%
1 September 4.91%
1 October 4.90%
1 November 4.90%
1 December 4.93%

The reason interest rates have been rising is because lenders – at the urging of APRA, the banking regulator – have been trying to remove risk from the mortgage market by making it harder for fringe borrowers to qualify for loans.

Investment loans are regarded as riskier than owner-occupied loans, which is why rates for the former have risen faster than the latter.

As a result, the gap between the average variable owner-occupied rate and the average variable investment rate increased from 27 basis points to 46 basis points.

Date Owner-occupied Investment Gap
1 January 4.32% 4.59% 0.27%
1 February 4.35% 4.61% 0.26%
1 March 4.35% 4.62% 0.27%
1 April 4.37% 4.67% 0.30%
1 May 4.39% 4.74% 0.35%
1 June 4.41% 4.78% 0.37%
1 July 4.44% 4.84% 0.40%
1 August 4.46% 4.89% 0.43%
1 September 4.47% 4.91% 0.44%
1 October 4.46% 4.90% 0.44%
1 November 4.45% 4.90% 0.45%
1 December 4.47% 4.93% 0.46%

Fixed rates also got dearer in 2018

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A similar trend played out in the fixed-rate market during 2017.

Focusing on three-year fixed rates, the average interest rate for owner-occupiers moved from 4.08 per cent to 4.24 per cent – an increase of 16 basis points.

Date Rate
1 January 4.08%
1 February 4.11%
1 March 4.14%
1 April 4.17%
1 May 4.21%
1 June 4.21%
1 July 4.21%
1 August 4.23%
1 September 4.22%
1 October 4.22%
1 November 4.23%
1 December 4.24%

At the same time, three-year fixed rates for investors climbed by 30 basis points, from 4.26 per cent to 4.56 per cent.

Date Rate
1 January 4.26%
1 February 4.30%
1 March 4.32%
1 April 4.37%
1 May 4.43%
1 June 4.45%
1 July 4.49%
1 August 4.53%
1 September 4.55%
1 October 4.55%
1 November 4.55%
1 December 4.56%

During the course of 2017, the gap between three-year rates for owner-occupiers and investors widened from 18 basis points to 32 basis points.

Date Owner-occupied Investment Gap
1 January 4.08% 4.26% 0.18%
1 February 4.11% 4.30% 0.19%
1 March 4.14% 4.32% 0.18%
1 April 4.17% 4.37% 0.20%
1 May 4.21% 4.43% 0.22%
1 June 4.21% 4.45% 0.24%
1 July 4.21% 4.49% 0.28%
1 August 4.23% 4.53% 0.30%
1 September 4.22% 4.55% 0.33%
1 October 4.22% 4.55% 0.33%
1 November 4.23% 4.55% 0.32%
1 December 4.24% 4.56% 0.32%

What’s ahead for rates in 2018?

The RBA would like to hike rates at least once in 2018, but right now it seems impossible to see how they might achieve this.

Inflation is going in the wrong direction, household debt continues to climb, while wages growth remains steadfastly on a well-trodden path to nowhere.

Looking at this data, a rate hike in 2018 is improbable. Moreover, if inflation continues to fall at the same time wages continue to stall, then the RBA might be forced to play one of their last trump cards and cut rates to yet another record low.

This, however, does not mean rates will remain stable.

Our banks have a big year ahead of them with a landmark Royal Commission, the federal government’s bank levy to hand over and whatever new hoops APRA put on the table. If they’re squeezed too tightly, home owners may find themselves footing some, if not all, of the bill.

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