There’s no doubt that March was a busy month for the property market, with all four of the big banks lifting their home loan rates, and I think it will almost definitely be the end point for the low rates we’ve seen over the last few years.
The only way is up from here, and it’s investors who are going to feel the change the most as the banks set their sights on investor rates in particular.
Why have home loan rates increased?
Since NAB hiked their rates in mid-March the other three big banks have all followed suit with increases across the board, with the exception being ANZ maintaining their owner-occupier principal and interest rate.
I’m sure you’ve seen that the best standard variable rate for an owner-occupier with the big four is now 5.25% with either ANZ or the Commonwealth Bank, but the real hit has come for investors with the lowest investor rate now 5.79% with Westpac.
There are a few reasons why the banks have chosen to up their rates, with their eagerness to avoid an APRA crackdown on investor loans chief among them. Of course, APRA announced tighter restrictions to investment and interest-only lending, so that didn’t quite work out for the banks. But the rate hikes may still turn out to be a win for the big four, as they pocket a tidy profit in extra interest.
Aside from APRA, the banks have also pointed to a growth in the cost of funding as a catalyst for the rises, with rate increases likely to compensate.
Of course the big banks aren’t alone in lifting rates this month with 28 other lenders joining the rate hike party, but it’s interesting to note that a number of them have left their owner-occupier rates unchanged while increasing investor rates.
What comes next?
Looking ahead to later in the year I don’t think we’ve seen the last of the out of cycle rate rises – in fact, I expect them to rise again, perhaps around November.
However, it’s doubtful that there’ll be a Reserve Bank increase this year given the two recent rounds of bank hikes, with a cash rate rise more likely sometime in 2018. With lenders likely factoring in an RBA rise for sometime next year they’ll want to safeguard their fixed rates (in particular) by increasing them, which is why we’ll see more out of cycle bank rate rises later in the year.
Top tips for borrowers
- Shop around. Now that rates are on the move upwards it’s definitely the right time for borrowers to shop around for a better deal and to consider refinancing if they’re in a position to do so. I’d suggest looking at a fixed rate while they’re still relatively low, especially before another potential rise later in the year.
- Look at moving to principal and interest repayments for a better deal. Both investors and owner-occupiers should take the time to consider switching from interest only repayments to principal and interest given the widened gap after the recent rate hikes. With lenders like CommBank actively encouraging borrowers to swap over by waiving fees now could be a good time to start paying down your loan.
- Create a buffer for yourself. Make the most of the relatively low rates before they rise again by taking a chunk out of your loan with an increase in your repayments. Alternatively, create a buffer for yourself against future rate rises by putting money away in an offset or savings account.