Mortgage rates keep on falling

In recent weeks we have seen mortgage rates ratchet lower despite no change in the RBA cash rate.

Westpac last week announced that it slice its two and three-year fixed mortgage rates by up to 20 basis points to a record low 1.79% (two-year), 1.88% (three-year), and 1.89% (four-year).

This week, Homestar Finance launched the lowest mortgage rate in Australia’s history, offering a two-year fixed rate of just 1.74% and a variable rate of only 1.79%.

Australia’s third biggest bank – National Australia Bank (NAB) – joined the frenzy yesterday, cutting its two-year fixed home loan rate to 1.89%, down from 2.04% previously.

RateCity research director Sally Tindall believes it is only a matter of time before the other majors – CBA and ANZ – respond by cutting their mortgage rates:

“Now all eyes are now on CBA and ANZ to see if they will jump on the bandwagon and bring their rates below 2 per cent”.

Canstar’s Steve Mickenbecker agrees:

“Commonwealth Bank’s lowest rate offer is currently 1.99 per cent fixed for four years, a term that most borrowers find daunting”.

I never would have imagined that a mortgage rate of 1.99% would be perceived as “daunting”. But these are crazy times. The Reserve Bank of Australia (RBA) has actively intervened in the market to crater fixed mortgage rates via its Term Funding Facility (TFF).

The TFF enables banks to borrow directly from the RBA at just 0.1%, rather than relying on more expensive wholesale funding. This, in turn, has enabled the banks to lower fixed mortgage rates to rock-bottom levels while maintaining reasonable net interest margins.

The upshot is that fixed mortgage rates could continue to fall, possibly towards 1%, if the RBA wants it.

All the RBA has to do is follow Europe’s lead and offer negative interest rates on the TFF, which would effectively pay banks to lend.

In the age of quantitative easing, the old rules around the cash rate, wholesale borrowing and mortgage rates no longer applies.

Unconventional Economist
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Comments

  1. He guys did you know the new economic theory …….

    Gov bond rates are going lower first, but 10 year will be above 3% later this year, but banks will be lending at 1%

    It’s called the upside done finance banking theory

    AAA government 10 year yiejd goes to 3%

    Customers get 0% ….and maybe customers might even get the privilege to pay the bank, so the government and RBA can keep this bubble going
    But the issue is RBA is buying bonds that will sit on their balance sheet but RBA will lose a fortune because the bonds are going to collapse in price as interest rates rise because of out of control inflation
    So RBA will buy more bonds, QE, cause even higher inflation and even higher interest rates
    RBA will give money to the banks for free so ….they can keep home loan rates at 1% as the government has to borrow money at 5% as gov bond yields rise
    So the government borrows money at 5% to give to everyone in free grants
    The grants just push the price of the property up and so customers have borrow even higher amounts at 1%

    Unfortunately food prices have gone through the roof with run away inflation but the pensioners have to pay to keep the money in the bank so the financial system doesn’t collapse

    It’s the upside down new economic theory

    We are the lucky country

    • You seem to have missed a pretty crucial detail there.
      The RBA can create money out of nothing, they don’t need to borrow it. The government borrows it by choice and could easily just create it as well.
      Bond rates only matter to home loan rates if that is where the funding for bank loans is coming from, and it increasingly isn’t.

      • Explain how the currency won’t crash if the USD in the bond market is paying several times more in yield as the AUD?
        Why won’t this cause RBA to have to increase their rates on the AUD to match.. even on the money they create out of nothing?
        They can create money out of nothing. Can they convince the world to take it for nothing when USD is paying more for you to take theirs?

  2. “I never would have imagined that a mortgage rate of 1.99% would be perceived as “daunting”.”
    In 4 years a 1.99% rate may well be massive compared with the then currently available rates.

  3. One trick ponyMEMBER

    The RBA is on record (on recently reiterated) that TFF is ending June this year, which would mean there is only a 3 month window for fixed rates to go lower before increasing again. Are you suggesting the RBA will change their mind and extend TFF?

  4. KoalaBearMEMBER

    Can someone explain to me why TFF funding wasn’t directed to business lending only? Is it not clear that the way things are all the cheap money will do is further inflate non productive assets?