Fixed rate mortgages tumbling

From the AFR:

Australia’s second biggest home lender, Westpac Banking Corp, announced on Thursday that the rate to fix home loans for two years had been lowered to 4.99 per cent.

It is the lowest fixed rate offered by Westpac since April 2009 and follows the Reserve Bank of Australia’s decision on Tuesday to keep the official cash rate unchanged at 3 per cent.

Fixed-rate mortgages are priced on expectations of future interest rate changes by the RBA and move ahead of variable rates.

The bank is taking Bill Evans’ forecast for a March cut very seriously. But ho hum. If Bob Gregory is right, Westpac will be offering 3.99% next year.

Still 3 year fixed mortgages are already below GFC lows, according to Bloomie:

And that’s low enough for some folks to bite:

Fixed rate small business loans are also at record lows according to Bloomie:

That’s if you can get one…

 

15 Responses to “ “Fixed rate mortgages tumbling”

  1. flawse says:

    Thanks you’re working hard!
    Then I wonder if the same term for small business, with absolute first class security, has dropped below an effective 9%?

    I need to be uncivil again.
    This is just all so bloody stupid it is beyond the most outrageous and cruel imagination!

    • Added above. Looking better also, if you can get one. Maybe I’m missing something. Fees etc?

      • Deep T says:

        In Aus we call them fixed rate IOs. In the US they used to call them Alt A Option ARMs. 2 years to rate reset at a rate at the discretion of the bank.

        Sounds like a great product for both the customer and the system..not. In which case look for a lot of activity.

      • LBS says:

        In the US you can fix your rate for up to 30 years……

        Not sure why they dont do this in Australia.

        That would be a good topic

      • flawse says:

        Thanks when I checked they were showing about 7%. Might be interesting to see what actually IS available.
        Yes fees etc are pretty steep and right now i forget detail. I might also have been guilty of mild exaggeration…which i shouldn’t do!

        Still when you’re looking at numbers multiples of the average house it gets jolly expensive. Scary in fact in the face of your report on Garnaut and Gregory….appreciated.

      • Freddy says:

        http://www.westpac.com.au/personal-banking/home-loans/tools-calculators-rates/fixed-home-loan-rates/

        5.19% fixed for two years. To qualify for the other 0.2% you have to sign up to the Premier Advantage package for $395/pa, and the 0.2% discount only apply to borrowings over $150k. $395/0.2% = $197.5k. In other words the extra 0.2% effectively only applies to borrowings over $347.5k ($150k + $197.5k).

        I am curious to know if they have also jacked up their fees for fixed loans.

  2. Peter Fraser says:

    This rate matches the Westpac GFC rate, although that may have been 4.95% – my memory is a little hazy on that, but what difference does 0.04% make anyway.

    Not sure why these are referred to fixed rate I/Os above because they needn’t be I/O – most are written as P&I as far as I know. Investors will use I/O but PPOR owners usually like P&I – in addition Westpac allow a partial offset on these fixed loans, so often added repayments may be made via offsets.

    I also disagree that the low rates are the cause of any problems – supply is the root cause of high prices and high rates will only re-inforce that lack of supply. Drop the OCR to 2.00% but add signiicantly to supply at the same time and you might actually rebalance the market instead of continuing this current imbalance.

    The cure promoted here looks more like the cause to me.

    I’m not sure how expecting our local business owners to pay much higher rates than overseas competitors actually helps local business – I would have thought the opposite applied.

    I would prefer the politics of astute management over the politics of punishment any day of the week.

  3. Pfh007 says:

    A few things to ponder.

    is this a sign the bamks are getting desperate for activity and are prepared to slim their margins.

    Local term deposits seem unlikely to be a profitable source of the funds so are they relying on those easily pleased ( for now ) foreign savers.

    Certainly better supply is part of the recipe and would take a huge load off monetary policy.

    But in an election year when policy debate exceeds the capacity of a soundbite, low rates are the likely result.

    Naturally those induced to enter the market by the low rate bait will join the throngs of those arguing against interest rate sanity in the years ahead.

    Brilliant !

    • Peter Fraser says:

      I appreciate your concerns. We have had periods of low interest rates before without high house prices, so the two are not mutually exclusive.

      If we jack up interest rates we guarantee short housing supplies in the future, which guarantees high prices.

      If we allow low rates to stimulate housing construction we add to the stock but risk price inflation – but perhaps it’s a risk that needs to be taken and managed appropriately, because we have been trying the alternative for decades with increasingly poorer results.

      • csfn says:

        And we all appreciate your concern Peter.

        Just to capture the key points of your post:
        1. Lower rates means house price inflation
        2. Higher rates means less supply which means house price inflation

        Endless sunshine for house prices then!

      • Pfh007 says:

        I agree low rates and low house prices are not mutually exclusive. If we have strong culture of saving it is likely our rates will be naturally lower and that would be a preferred state of affairs.

        Nor do I support jacking up rates.

        My concern is the present policy of forcing rates lower to prevent the necessary rebalancing.

        It is clear that the present low rates are not presenting an impediment to housing construction which suggests the causes of the low levels of activity are elsewhere.

        Allowing the adjustment to take place is the fastest way to get activity restarted and the demand for credit – albeit lower loans sizes – moving.

        While my comments often sound like I am opposed to debt/credit in fact I have no concerns at all provided it is not used to pump prime and distort the economy. Appropriate interest rates are an important – but not the only – part of that.

        An active housing sector and the funding mechanisms critical to it, are a vital part of thebeconomy.

        There is plenty of housing stock that would benefit from improvement – especially energy efficiency.

  4. The Patrician says:

    Mortgage debt growth is part of the problem.

    An orderly deleveraging is part of the solution.

  5. Jagster says:

    Now I know why the RBA didnt cut rates. It all makes sence now.

    The banks would have a lot of rate ammo up their sleaves they could give up without the RBA doing a thing this year.

    Could the next RBA move be up?

  6. Revert2Mean says:

    All is well

    Just thought we should all read that. Make the US housing recovery look laughable.

    • Pirate Nation says:

      Scary read, they are unbelievable in the US but nice to see the banks here are starting to pass on some savings for the 33% of mortgage holders after their record profits. Maybe they can then start to appease the other 66% of savers and increase their term deposit rates and improve their customer satisfaction ratings?! Just a thought…