Spreads widen on mortgage rates

Prior to this week’s 0.15% cut to the RBA’s cash rate to a record low 0.10%, the gap between average discount variable mortgage rates and the 3-year fixed mortgage rate had already ballooned to 1.26%:

As shown above, the average discount variable mortgage rate was 3.65% in October versus a 3-year fixed mortgage rate of 2.39%.

This gap is expected to widen, with Australia’s four largest banks keeping their variable home loan interest rates were unchanged following the RBA rate cut while reducing their fixed home loan interest rates, with some falling below 2% for the first time:

The major banks have piled onto the same strategy of not passing on an official rate cut to the majority of home loan borrowers…

With official rates not far off zero — at 0.1 per cent — the banks argue the hit to profit margins is too great to cut variable rates, given they are unable to reduce deposit rates much further. The counter argument is that they have access to cheaper funding via the RBA’s term funding facility…

The majority of existing mortgages across the banking system — or 70 per cent to 80 per cent — are, however, in variable rate products.

Expect a big pivot to fixed mortgages. Those rates are too low to ignore.

Unconventional Economist
Latest posts by Unconventional Economist (see all)


  1. How are you going to be paid to hold a mortgage when you’ve locked into a positive rate? Tenants will be a thing of the past, just let Governments and the banksters fund your endless summers.

  2. The fixed rates will blow out back to the variable rate next year and when all these people who fix in at 2% on fake rates will be rolling out at 5 or 6% in 2/3 years
    It’ll be like the reset but home prices would have already crashed as rates rise next year anyway
    It’ll be one debacle after another next few years
    Anyone who thinks that once their fixed rate expires will be refinancing at 2% are on majic mushies
    Remember these loan terms are 30 Years
    Do you servicing on 6% to 8%
    This is going to end in tears
    Anyone analyst pushing people into excessive debt at this point 2% is completely irresponsible and should not be providing any financial advice
    Innocent borrowers are being sent to the slaughterhouse

    I will be right

    Australian house prices start their multi year decline ….

    • You forget governments are the most indebted they have every been. There is no way the Govt / CBs increase rates to destroy both public and private balance sheets and assets prices. Your talking armageddon scenario with madmax and your mates. Not going to happen.

      • chuckmuscleMEMBER

        Yep. We’re in a post-capitalist quagmire where market pricing of risk has vanished. Government can control the cost of money for banks, see TFF. Agree that Europe is moment’s away from a banking crisis, that could make life uncomfortable for a month or so, but expect liqudity will be hosed at our banks quickly, they probably won’t have to raise $$ in wholesale markets anyway.
        I don’t like it, but here we are….

        • chuckmuscleMEMBER

          Should add, following the US election, I think inflation is years away (famous last words??..) And on top of that CBs focusing on realised inflation, not expectations, which is huge when combined with average over the cycle [email protected] Therefore the risk free rate set by governments is years from going up.
          And as highlighted above, credit risk for banks is non existent when the funding source, governments, don’t take it into account for banks.

    • So when do the rates start to increase? Will it be RBA increasing or bank increases independently? I just cannot see it, and my prediction is that by q1 next year there will be even more money floating around, more hiding the financial reality, more nationalisation by stealth and booming house prices.

      I wish it weren’t the case but how do we go from our current government funded mania to overnight crash….I’ve been waiting for the crash for a decade, I doubt now it will suddenly appear next quarter.

      What will they come up with next…withdraw all super into houses, the government will pay your mortgage, debt forgiveness for your investment property. They will literally do anything.