Home loan rates are creeping up as lenders’ borrowing costs rise.
Every month at Finder we analyse all the loans in the database (thousands of them) and find the market’s lowest rates. And every month since June 2019 the market’s lowest home loan rates have either fallen or stayed the same. Until this year.
In January the market’s lowest variable rate (owner-occupier, 20% deposit) rose from 1.77% to 1.85%. The lowest fixed rate jumped from 1.59% to 1.79%.
Lenders have been slowly adjusting rates upward on some loans for a few months now, but now we’re seeing this become a broader trend affecting all loans. Australian home loan rates have hit bottom and are on the way up.
All economic signs suggest that rates are only going to rise further this year. Here’s why.
Rates can’t really get much lower
This might sound obvious but interest rates can only go so low. In the last few years, lenders have dropped rates to historic lows. Right now you can get a loan with a rate well below 2.00%. This makes borrowing costs incredibly low. It was never going to last.
Everyone expects interest rates to rise in the US
There is widespread anticipation that the US Federal Reserve will lift interest rates this year to curb inflation. This means the cost of borrowing money from American lenders will rise.
This will affect Australian lenders because a significant amount of the money they use to fund the home loans they issue to borrowers comes from American money markets.
This explains why lenders are already lifting fixed interest rates. “Banks are forward looking and get their funding from all over the world, with the US being a particularly important source of funds for Aussie lenders,” said Finder’s investment writer Cameron Micallef.
“The last thing an Australian lender wants is rates in the US to rise significantly, the cost of their repayments going up and clients being locked in on a cheaper rate than what the bank is getting.”
When will the RBA make a rate move?
In Australia the Reserve Bank (RBA) sets the official cash rate, which determines lenders borrowing costs in a similar way to the US federal reserve rate. This directly impacts how lenders set their variable interest rate loans.
The cash rate has never been lower than its current rate of 0.10%. The Reserve Bank has suggested that it won’t lift the cash rate in 2022, but many experts speculate that it may have to. In December, 46% of the experts in Finder’s cash rate survey predicted a rate rise in 2022.
And with the Fed making noises about rate rises in the US, the case …….