Aussie property buyers face rising mortgage rates

The biggest driver of the current property upswing has been the sharp decline in mortgage rates, especially fixed rates.

This is illustrated clearly in the next chart from CoreLogic, which shows new loan rates falling sharply over the past two years, driven by fixed rates:

Australian mortgage rates

Australian mortgage rates have fallen sharply.

At the same time, the share of new mortgages taken out at low fixed rates has surged to a record high 40%, which has helped drive the strong demand for property and rising dwelling values.

However, the Reserve Bank’s decision to end the Term Funding Facility (TFF) in June will obviously lift fixed mortgage rates going forward.

Chris Joye warned on Friday that Aussie banks will need to refinance $150-350 billion of RBA funding at higher market rates.

Sally Tindall, research director at RateCity.com.au., is now warning that banks are “shutting the door” on cheap fixed rate mortgages:

“Banks are shutting the door on record low four and five-year rates. Three-year rates are likely to be next, potentially in the second half of this year,” she said…

Bank funding costs [will] rise after the June 30 deadline for a pandemic-era program that offers cheap three-year funding to lenders to reduce their costs, and in turn reduces interest rates for borrowers, known as the RBA’s term funding facility.

Higher fixed mortgage rates will obviously help to curb new property demand. However, existing borrowers will also be hit down the track. A lot of people with mortgages will have rolled into irresistible fixed terms over the past year. As they roll off, repayments will jump higher.

Regardless, the overall lift in mortgage rates should act to cool the market, irrespective of when the RBA lifts the cash rate or regulatory intervention from APRA.

Unconventional Economist
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Comments

  1. It’s not a big jump rolling off a 3 year fixed 2.19% to 2.42%.
    Variable is not going up either. Just look at the huge miss in employment change.
    We are going to have lower rates for a long time.

    You can get a 1.34% 30 year fixed in germany with deutchbank.

    • That’s assuming variable rates will stay constant, overseas funding costs have increased

    • Not sure if desperate – or begging.

      Either way – here are global governments options – raise rates or face civil unrest.

      Rates will be raised.

    • Deutsche is on the edge of going under
      It’s estimated derivatives exposure is $100 trillion
      They’ll be calling in the loans at some stage
      That’s the last bank I’d be comparing to.

        • It already has
          ECB is holding it up
          Don’t worry it’s going under in H2 with a few of its derivatives mates

          • Slalom Charles

            Bc, Deutsche has been a zombie for many years, what do you think will break it in h2?

      • Its not just Deutsche Bank and its not just Germany.
        Banks all over Germany, Denmark, Switzerland, Sweden and others all much lower.

        • Don’t worry you’ll see some banks go under from those countries too….this year
          The banking crisis is going to be started in Europe
          That whole region is close to collapse

          • It’s just the progression as societies become more developed and population growth flatlines.
            Japan has been through this cycle for decades and has led the way of how financial institutions will operate.

    • Is the only thing stopping an Aussie resident getting an overseas mortgage the reluctance of the overseas bank? Why do we need the middle person these days at all!

    • TFF is crock of horse shxx
      It’s some ridiculous facility that gives away free money that’s just going to create more and more inflation
      They should call it the inflation facility

      • Jumping jack flash

        But inflation is what they’re trying to achieve.

        It is all going according to plan. Any inflation will be looked through because Fearless Phil said so not long after settling into the hotseat.
        We will certainly need CPI up around 6% to counter the deflation caused by that gargantuan pile of debt we call the global economy these days, probably higher if we want any growth.

        Notwithstanding some bank somewhere blinking at the colossal mess all the banks have made of the global economy over the past couple of decades.

        Not entirely sure, but wasn’t the 2008 GFC initiated by a bank blinking at the entirely necessary and completely natural progression into NINJA loans? Might have even been Deutsche Bank…

    • They might rename it so it doesn’t look like they are continuing it; something like PLM (period liquidity mechanism)

  2. Rates will not be raised. Inflation data will be looked through and the decision will be to leave rates on hold.

    • Absolutely not, inflation is getting out of hand and you’ll see higher inflation next 3 months
      They want to look through it but they won’t be able to
      The longer they don’t act, the worse inflation will be

      Anyone who says there is no inflation or it’s transitory is wrong
      You’ll see by Aug Sept that inflation is becoming a problem they can’t ignore

      Interest rates are going much higher over the next few years, in H2 this year they’ll be up around 4% from 2.5% variable

      2% fixed rate is just one big lie to get people to borrow

      • Inflation getting out of hand? Maybe if it got to 9 or 10%, but it is a long way from that. There are some pricing pressures but no wholesale breakout of inflation.

        We’ll see if interest rates are 4% by December. Very unlikely from 2.5%.

        • Jumping jack flash

          Agree.
          6% CPI is what they need, and I’m not even joking.

          Now, the likelihood of some bank somewhere baulking at that amount of CPI is quite high, and if that happens its all over. Its a bit of a gamble, but what’s the alternative? At the very best we’ll have global deflation for the next 50 years while the debt is repaid plus all the lovely interest. At worst everything implodes.

        • Jolly if inflation was 10% you don’t even want to know where interest rates would be
          You better prey we aren’t even at 5% inflation

  3. AUST 10 year today is around 1.70%
    Think it’s heading back down to 1%
    Think we will see banks reduce fixed rates 4 and 5 yr next 2 or so months

    Rates long term up but think there’s one more chance to get a lower fixed rate

  4. Moving to Westpac 2 year fixed OO 1.89%, current lender came back to offer me 1.69% variable.. taking Westpac since I get $3k cashback, after 2 year period will review again….current lender is 2.78%, should have pushed earlier

    • Mark, that’s sheer desperation
      Deposits are zero
      Everyone is pulling money out of the bank and buying property or ASX
      There will be no money in the bank in 6 months if this continues

      If you can’t see our banking system is being destroyed in front of our eyes …….

      The crisis in H2 is a global banking crisis

      They are on the absolute edge

      Mark can I ask who offered 1.69%, or was it a big 4?

  5. Honestly all of you that think rates are staying low are just in denial like an alcoholic

    • boomengineeringMEMBER

      bcnich have you read The New Great Depression ( James Rickards ) yet it only came out a couple of months ago ?

        • boomengineeringMEMBER

          Nor am I, but dont despise them and sometimes I like a point of view alternate to mine and glean a few ideas

        • Mike Herman TroutMEMBER

          Bcnich, could you tell me why not a fan? Not defending him at all, but reading Rickards got me into precious metals back in 2014.

      • Dennis you’ll see and you won’t have to wait 18 months ….18 weeks you’ll see
        Think lower here a bit but what’s 18 weeks about October…..rates will be rising steadily ,,,,,I’d say you’ll see increases before then but October well on their way

        You better buy a few bottles of your best booze ……before prices rise……you’ll need a few when rates rise

  6. The time has come
    To say fair’s fair
    To pay the rent
    To pay our share

    The time has come
    A fact’s a fact
    It belongs to them
    Let’s give it back

    How can we dance
    When the rate are turning
    How do we sleep
    While our beds aren’t earning

      • blacktwin997MEMBER

        When i was at college we had a tutor who was afflicted with a genetic baldness – as in completely bald and no eyelashes or eyebrows. Very nice chap, very straight laced but also keen for peer acceptance.

        At the college Christmas dinner we would normally have a talent show after dessert. For one of these shows we persuaded the tutor to mime to ‘U. S. Forces’ after a quick tutorial view of an Oils video recording from Rage. We were pretty awful people, yes.