RateCity research has found that since 1 March, 16 lenders have increased 4-year fixed home loan rates.
While lenders are still predominantly cutting rates out-of-cycle with the Reserve Bank of Australia’s historic-low cash rate, it appears that 4-year fixed rates are bucking the trend.
This is no doubt being influenced by comments from Reserve Bank of Australia Governor, Philip Lowe, indicating that the cash rate is unlikely to increase until inflation targets are met – potentially in 2024.
Lenders may now view 2024 as the next expected date of a cash rate increase and are adjusting fixed home loan rates accordingly.
RateCity research found that the average 4-year fixed owner-occupier principal and interest rate has increased 4 basis points since 1 January, rising from 2.50 per cent to 2.54 per cent. While this is a small difference, it still shows that in such a low-rate market, 4-year fixed rates are swimming against the tide and slowly increasing.
Fixed rate home loan movements since 1 March
|Lenders that have cut||Lenders that have hiked||Current lowest rate|
|1 year fixed||17||9||1.69%|
|2 year fixed||35||9||1.74%|
|3 year fixed||26||8||1.75%|
|4 year fixed||2||16||1.89%|
|5 year fixed||11||11||2.10%|
Source: RateCity.com.au. Data accurate as of 19.04.2021.
Of the 4-year fixed rate hikes, notable lenders include Commonwealth Bank, Bankwest, Bank of Queensland, Adelaide Bank and Bendigo Bank.
While lenders have both cut and increased rates since the November 2020 cash rate cut, it’s interesting to note that many are predominantly beginning lift their 4-year fixed interest rates, potentially in expectation of a cash rate increase in the next few years.
What can borrowers do to stay on top of future rate hikes?
Whether you’re a first home buyer or a refinancer, if you’re shopping around in our current low-rate environment for a bargain, it’s worth keeping this predicted cash rate increase date in the back of your mind.
No one can predict the bottom of the market, but it’s safe to say rates have never been lower. This means that it is inevitable they may rise again one day, whether it is 2024 or sooner.
That being said, it is crucial that borrowers do not overstretch themselves from the beginning. Here are some things borrowers can keep in mind to stay on top of future rate hikes:
- Diarise the fixed-rate end date. If you’re looking to lock in a 4-year fixed rate today, diarise the fixed-rate end date. As it approaches, ensure that you’re able to still meet repayments, or consider if refinancing to a lower-rate loan option is a better fit for your finances.
- Adjust your budget early. If a fixed rate period is coming to an end, but interest rates have increased, homeowners may be nervous about servicing higher mortgage repayments. It may be worth making cuts to household budgets now. This may include ditching the second daily coffee or spending less on takeaway food. Adjusting budgets early for future rate hikes means homeowners may better ensure they can afford repayments on a higher rate mortgage.
- Split mortgage repayments. Another option worth considering is whether splitting your mortgage rate may better suit your financial needs and budget. By dividing some of your repayments between a fixed rate and a variable rate, you may be able to reduce the impact of a potential cash rate hike on your mortgage repayments. This is because variable rate loans typically allow borrowers access to more features, such as an offset account or allowing for extra repayments, which help to reduce your mortgage principal.
- Make extra repayments now. Speaking of features, homeowners who are afforded the option of making extra repayments (particularly if on a split rate mortgage) may want to consider chipping away at their home loan principal with additional repayments now before the cash rate increases again.
Keep in mind that the big four banks do have caps on extra repayments for fixed rate home loans, as well as many other lenders, so it’s worth looking at your home loan’s product disclosure statement or terms and conditions for more information.
If you’re hoping to make extra repayments on your mortgage with full flexibility, a variable rate home loan may be better suited for your financial goals. However, understandably this repayment type comes with its own advantages and disadvantages, including being subject to market fluctuation.