But the latest ABS data shows that fixed-rate loans accounted for 28% of new loan commitments in February, the lowest proportion since April 2020. This number is expected to be even lower in March and April, as fixed-rate bank offers fixed become less attractive. to new borrowers.
“The time to fix the interest rate, at least at the big four banks, seems to be behind us,” said Canstar Group Director Steve Mickenbecker.
“Fixed rate loans are the very last season.”
The return to variable rate mortgages should be welcomed by the Reserve Bank as it begins to raise rates in a bid to keep inflation in check. Fixed-rate home loans hamper the “transmission mechanism” of monetary policy because mortgage payments do not change when the cash rate rises – until fixed rate periods end.
UBS estimates that $350 billion in fixed-rate loans could suffer a mortgage repayment shock of 20-40% when they move to significantly higher rates over the next few years.
While standard variable rates (SVR) have recently been reduced in an ultra-competitive mortgage market, analysts expect SVRs to rise in line with increases in the RBA cash rate, which are expected to begin in June, passing the increases from official rates directly to variable rate customers.
For homeowners, NAB on Friday raised its interest rate for four-year fixed-rate loans by 0.60 percentage points to 4.79%. This would add $400 per month, or $4,800 per year, to the cost of a loan for a median priced property in Sydney assuming a 20% down payment.
NAB also raised rates on its two-, three- and five-year fixed rates by half a percentage point as longer-term bond rates in financial markets continue to soar. NAB kept its one-year fixed rate unchanged, while the two-year fixed rate for investors paying interest only was increased by 0.80 percentage points.
The spread between standard floating rates and fixed rate offers indicates the pace at which official rates are expected to rise: NAB’s three-year fixed rate is now 2.30 percentage points higher than its lowest floating rate, which represents more than nine quarter-point increases during the period this period.
Other banks have also increased fixed rates while maintaining competitive variable rates. Westpac lifted most of its fixed rates twice in a week in mid-April. ANZ also raised its one- to five-year fixed rates by up to 0.60 percentage points in mid-April.
Analysts say variable rate borrowers should also prepare for higher repayments once the RBA begins to tighten monetary policy.
“These fixed rate increases are a sign of things to come,” said Sally Tindall, research director at RateCity.
“Record variable rates are also about to be consigned to the history books, although the variable increases may not be as severe.”
Minutes of the RBA’s April board meeting released last week show that stronger inflation and rising wages could push the first official rate hike forward to June 7. Banking analysts expect big banks to quickly pass on the full impact of official rate hikes to floating rate customers.
As banks shy away from commenting on future rate movements, the impact of higher official rates on the housing market, bad debt levels and profit margins will be key issues for the interim banking reporting season for three of the major banks which will begin next week.
ANZ Bank will release its half-year figures on Wednesday next week, followed by NAB on Thursday, then Westpac on Monday May 9.
UBS says even its dovish RBA rate hike forecast will boost mortgage repayments for a new high-income-share loan after the GFC. It expects interest payments to peak at 8.8% of revenue, in line with pre-COVID-19 levels.