The Australian winter may have been many things - a winter of cold, a winter of drought and a winter rife with political machinations. But it was also a winter of home loan rate rises.
Since June 1, 27 different lenders in the Mozo database have either made or announced across the board changes to variable home loan rates, including the likes of AMP, Macquarie and Suncorp.
And as of last week, Westpac became the first of the big banks to join the swell of rate-hiking lenders after announcing a 14 basis point hike on variables rate loans for new and existing borrowers from September 19.
According to Mozo Data Manager, Peter Marshall, increased funding pressure from home and abroad has forced the hand of many lenders, with Westpac’s move likely to have a domino effect on the other major banks.
“Lenders have been absorbing higher funding costs for the last six months, so unless the situation suddenly improves they are either going to need to come up with a way to recover those costs, or accept lower profits,” he said.
Not a matter of if, but when, for future hikes
Now that Westpac has joined the host of lenders to have raised variable rates in recent months, are ANZ, the Commonwealth Bank and NAB likely to follow suit with a 2018 rate rise of their own?
“It seems as though Westpac felt the pressure more acutely, however at the end of July NAB flagged that it may have to increase rates, so I would be astounded if they don’t,” said Marshall.
“I also don’t see any reason why either ANZ or the Commonwealth Bank would not follow suit and make a move of their own.”
While it’s possible that other lenders may also ramp up variable home loan rates by the end of the year, Marshall noted that the funding cost pressures appear to have peaked, meaning that lenders who have already lifted rates in recent months would be less likely to do so again.
“While funding cost pressures are still there, they’re not increasing, so I imagine the attitude is that once adjustments have been made in the form of raising rates, many lenders would consider that to be sufficient,” he said.
“Of course, that presumes that funding cost pressures stay where they are, which could well change.”
Could you save by switching?
Given that many Aussie families will have already felt a hit to their household budgets following the spate of rate rises over recent months, and many more will likely experience the same if the three remaining major banks lift rates, is there any way to mitigate the cost of a rate hike?
While it depends on a borrower's ability to refinance their home loan, not to mention the rate they’re currently on, for many mortgage holders there is likely to be an opportunity to save.
For example, a homeowner with a $300,000 mortgage on the current* average variable home loan rate in the Mozo database of 4.37% would expect to be making monthly principal and interest repayments of $1,645 over a 25 year period - or a total of $193,632 in interest over the life of the loan.
According to Mozo’s home loan comparison calculator, switching to a rate of 4.00% would reduce those monthly repayments to $1,584 and the total amount of interest paid to $175,053. That’s a difference of $18,579!
So think it’s time to refinance to a low rate home loan? Start your search today by comparing a number of variable rate home loan offers below 4.00% over at the Mozo refinancing hub. *Rate accurate as of September 4, 2018.