Interest rate war is over as lenders make out-of-cycle rate hikes

The last two months have seen a pause in the Reserve Bank of Australia’s rate-tightening cycle. With the cash rate held at 4.10%, lenders haven’t faced additional pressure to hike interest rates on their home loans – bringing some relief to mortgage payments. Or so we thought.

Despite the lack of RBA rate hikes in July and August, many lenders tracked in the Mozo database have increased the interest rates on their home loan offerings. While some fixed rates have received cuts, variable rates – especially on the lowest offers – have seen spikes between 5 and 15 basis points.

Some of the offending lenders include Australia’s Big Four Banks (Commonwealth Bank, ANZ, Westpac, and NAB) and major players like Macquarie, Bank of Queensland, and Qudos Bank. 

So why are lenders still raising rates, even when the RBA isn’t?

Mozo banking expert Peter Marshall says the reason lenders are still raising home loan interest rates is simple. “Because they can.”

Many buyers walked away from buying in the market during the height of the rate rise cycle. With limited customers on offers, banks and lenders made an effort to sweeten home loan and savings account deals with exciting offers, such as cashback refinancing and introductory rates. Six months ago, dozens of cashback offers were up for grabs: now, there are 10.

But now that buyers are flocking to the spring property market and rate hikes have plateaued, lenders have far less competition. 

“The home loan rate war is over,” explains Marshall. “If they’re all increasing their lowest rates, then there’s just no competition between them.”

“Lenders have obviously decided somewhere along the line that fighting it out for customers who want to cut the price of their mortgage is not their game anymore. The competition for customers is pretty much gone.”

Marshall calls this a natural shift as the market acclimatises to the RBA’s tight monetary policy. However, what’s eyebrow-raising is that even when interest rates come down, the competition for customers may remain chilly among banks.

“My view is that the home loan rate war won’t start again because more people will be looking for mortgages,” says Marshall.

“Property prices will be going up, too, so they’ll want larger mortgages. The banks won’t need to offer sweeteners – plenty of people will knock at their doors.”

So what options do Australians have when it comes to finding the best interest rates? 

Compare, compare, compare. Not every lender is raising interest rates – ING broke from the trend in July by slashing 10 bp off its Mortgage Simplifier loan. The grass may not always be greener on the other side, but you don’t know if you don’t look. 

“Just because your lender is increasing the rate doesn’t mean there’s no point looking around for a better deal – because there probably will be,” says Marshall. 

Compare low interest rate home loans in the table below.