Westpac hikes fixed home loan rates, RBA poised to move sooner than planned

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Westpac has made a number of changes across its fixed rate home loan suite, raising 3-year rates (OO, P&I) by 21 basis points and 4 and 5-year rates (OO, P&I) by 10 basis points.

The decision comes just two days after the Reserve Bank withdrew its forecast for a 2024 rate rise, which it had stuck to throughout the year despite growing skepticism from the private sector.

Westpac now offers fixed rates of 2.59% p.a. (4.20% p.a. comparison rate*) on its 3-year option and 3.29% p.a. (4.19% p.a. comparison rate*) on its 5-year option.

While the big banks led the way in cutting fixed rates last year, increased funding costs - brought about by the prospect of an earlier than expected RBA rate hike - had already forced many to reverse course.

“It’s only been a couple of weeks since Westpac last hiked rates, so I think the banks are starting to adopt the line that fixed rates are going to have to go up faster than might have been planned even a month ago,” said Mozo’s banking expert Peter Marshall.

Since 1 October 2020, 28 lenders in our database have increased rates on 3-year terms, 19 have hiked 4-year terms, and 24 have hiked 5-year terms.

Cash rate to rise sooner than expected

At every policy meeting since February this year, the RBA has said the conditions for a rate hike likely won’t arrive until 2024 at the earliest.

But higher than expected inflation figures, lifting of restrictions in the country’s two most populous states, and a wildly successful vaccine rollout had thrown the RBA’s guidance into doubt.

Things came to a head last week when markets drove up the April 2024 government bond yield, a key benchmark rate which the RBA wanted to see trading at the same level as the cash rate.

The Bank’s decision not to intervene to keep the yield down was the strongest evidence yet that it had given up trying to manage market expectations. 

The final nail in the coffin came at this week’s policy meeting, when RBA Governor Philip Lowe announced he would be scrapping the yield curve target altogether. 

Given the instrumental role that policy played in keeping interest rates low throughout the pandemic, its removal confirmed that a sooner than expected rate hike was now officially on the table.

RELATED: RBA hands down November interest rate decision, scraps key policy tool

While some analysts, such as those at Commonwealth Bank, expect the first move to come as early as November next year, the RBA likely won’t succumb to pressure to tighten monetary policy too quickly. 

In a speech to the media following Tuesday’s decision, Lowe said it was still entirely plausible that the economy experiences another setback, demanding a prolonged period of ultra-low rates.

At the same time, he said that if the Bank acts on rates earlier, it won’t be before 2023. Despite the inflationary spike, Lowe has his sights set firmly on wage growth, and that key indicator remains chronically weak.

“While on the issue of timing, the latest data and forecasts do not warrant an increase in the cash rate in 2022. I recognise that some other central banks are raising rates, but our situation is different,” Lowe said.

“For inflation to be sustainably in the target range, wages growth will have to be materially higher than it is now. This is likely to take time. The Board is prepared to be patient.”

For more information about mortgage and lending trends, head over to our home loan statistics page. And if you’re in the market for a home loan, visit our home loan comparison page, or browse the selection below.

Home loan comparisons on Mozo - last updated 23 February 2024

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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