Variable mortgage rates plunge to new lows

RateCity has reported that the number of variable mortgage rates on its data base offered under 2% has jumped from 28 to 46 in just two months. Moreover, there are more than three times the number of sub-2% variable rates at the start of the year:

“Since COVID, the battleground for the banks has been fixed rates. However, with record numbers of customers now locked in, some lenders are shifting their sights to variable rates,” said RateCity’s research director Sally Tindall.

“Banks need to be winning new business, not losing it, if they want their loan books to keep moving in the right direction.

“Well over half of all mortgage holders are still on a variable rate. That’s a huge market of potential refinancers for the banks to target.”

The RBA’s lending indicators data for August showed a similar trend, with the average discount variable mortgage rate falling 0.15% to 3.45% – the lowest recorded rate on record:

Mortgage rates

Lowest discount variable mortgage rate on record.

By contrast, fixed mortgage rates have begun to edge higher (to 2.19%); although they remained on average 1.26% below variable rates in August, according to the RBA.

Unconventional Economist
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  1. Jumping jack flash

    This’ll be good to reduce the yearly interest bill on our ~2 trillion dollars worth of outstanding mortgages. At 3.45% the great indebted only need to pay the banks around 70 billion each and every year instead of 100! It might not sound like much, but it certainly adds up over 30 years.

    It also means the growth targets for debt needn’t be so high, which is good because debt is not growing anywhere near the rate it needs to pay its own interest bill.

    It may also mean that people previously locked out of being eligible for the debt they need are now eligible, but that is generally more of a problem with that gargantuan, and archaic concept of “the deposit” that is required to be saved before being able to obtain the debt they need, even though their income may meet or exceed the eligibility criteria.

    Win/win. Nothing but good times ahead.

    • Fortunately the govt introduced the first home owner deposit scheme, allowing low income earners with no deposits to take out massive mortgages. (so much for high risk borrowers). Fortunately most of these are subsidised by parents sitting on 1 million house price growth. No real low earners need apply.

      All ways to increase house prices are covered by the govt. Here toi help get you into debt !

    • Lord DudleyMEMBER

      This guy gets it. Easily the most insightful non-member poster here.

      I have a half-million dollar (US dollar!) mortgage. It doesn’t bother me in the slightest, because it’s FREE MONEY! Thirty year fixed, and I’m already at the point where renting the same place would literally cost more. So long as the US can keep inflation, and thus larger future mortgages rolling, it’s all apples. And on that front, the US are probably the last developed nation that would go deflationary. Plenty of room for decades of wage growth here, given the previous decades (since 1972) of wage stagnation/contraction.

      If I were really smart, I’d be borrowing money like a maniac and buying all the land on the front range of Colorado I could. Unfortunately, my brain is broken and I don’t like zero sum games, so instead I just invest money I’ve actually earned in stocks and bonds. My children will despise me when I’m older.

      • Jumping jack flash

        “If I were really smart, I’d be borrowing money like a maniac and buying all the land”

        There’s no downside, at least in Australia, for the foreseeable future.
        Also, conveniently and coincidentally, the total amount of super is pretty much the same as the total amount of outstanding mortgage debt. I don’t know if that’s significant, but its something.

        It wouldn’t be totally surprising, at least not to me, when the shtf (and it surely will if our leaders don’t wake up and start inflating like crazy) the government seized all the super and replaced it with bonds or something. They could call them pension bonds. I do believe that is actually a thing.

        • Lord DudleyMEMBER

          If Big Australia™ keeps being a thing (which it likely will), do you even need to convert super into bonds? So long as you have inflation, and a greater number of the next generation to take out the requisite debt, it can be used to pay down the previous generation’s debt with no financial ill-effects. Australia and the US are gold here, although I think Australia has foolishly ramped up its house prices so rapidly that the next generation can’t afford the deposit; big mistake. The US will keep growing its population for the foreseeable future; a US with 500 million people is quite easy to imagine given the country’s natural resources. It’ll probably happen in the next 30 – 60 years.

          Meanwhile, poor old Europe is going into population decline, as are large parts of Asia (China, Japan, Korea). No way they’ll be kicking the debt can down the road for much longer.

          • What makes you see the EU being unable to continue? Wouldn’t that have broader implications for the rest of the world?

          • The retiree age group certainly is growing! I’ve got a mate who’s grandfather was in the military and his pension alone is about two standard salaries in France, so effectively needs two working people to support him (or add to his bank balance). I don’t think this is sustainable but I also can’t see why the EU doesn’t keep going down the path it has so far, further negative and even more QE. Anything else is going to be felt all over so I don’t think the US or AUS would be in anyway protected by that.

      • The Australian market is relativley large, why don’t US banks come to Australia and offer 30 year terms? Is currency risk the main factor?

    • How do the bank profits continue to grow and where do they make up this difference? Or will they just start climbing rates ever so slowly?

      • *rate rises are about to start
        *look at AUST & US 10 year, we are in risk off China fear market & interest rates are rising, 1.30 & 1.36 from 1.06 & 1.13, we’ve seen the lows
        *anyone holding long duration bonds are going to the slaughterhouse
        * we are about to really move risk on, watch rates rise
        * banks will be lucky to be standing in 6 months
        * what profits they are making will be the least of the problem
        *it’s one giant Ponzi scheme & any analyst that can’t see that I wouldn’t even listen to them
        *banks will be lucky to get a small portion back of the trillions they lent it

        This is set in stone for me

        I’m trying to figure out what they’ll do as a solution to the mess

        And these low variable rates are sucker rates. They get you in and raise the rates, it’s 101 bank policy

          • My feeling is 4 & 5 year fixed will be 4 to 4.5.% in 3 or so months

            Watch US 10 year, there might be a blip to 1.30 but think that will be it, we will be at 1.50% not too far away, Australian 5 & 10 are following the US yields

            Wave goodbye to low interest rate
            Inflation & rising interest rates will be the story into Xmas

          • The US 10 Year got to 1.77 not far back, yeah its on the way up but why would it go further? QE still ongoing.

        • Absolute BeachMEMBER

          Have a listen to J. Grantham interview on The Investors Podcast (Spotify). Epi 371. He is calling a top of the cycle. His indicators are sound. He might not detail exactly when it peaks, but his timing is usually pretty good. Run for the hills. Property only makes sense at 5,000 year lows in variable rates.

        • Bcnich, I really like your comments because unlike reality, you actually make sense. However, after looking at this monster of a property market for more than 12 years now, I don’t see anything that may change it as long as the AU government throws the Kitchen sink at it. I fear they have a lot of tricks left up their sleeves, this can go on easily for another decade or two.

    • I could fix part of my mortgage at 1.79% for 3 years with ING combined with variable. Tempting…..

  2. Read the fine print on those fixed rate mortgages from the big 4!
    Those fixed rates are basically teaser rates.
    They get people sucked in with a 2-year fixed at 2% which doubles after the fixed term to their crappy standard variable.
    Also people don’t look at the comparison rate which is again double the actual fixed rate.

    • Anyone who thinks they are rolling out into the same rate in 2/3 years when fixed rates expires is on LSD

      Exactly you are stuck in their crappy standard variable rate on expiration & you haven’t negotiated a discount off SVR

      In the USA you can take 30 years fixed not here

      In AUSTRALIA the variable rate in GFC dropped 4% in 3 months 7% to 3% around, so saved everyone & by coincidence many fixed rates actually taken around 2004/5 rolled out from around 5% into under 5%

      Not this time

      And it was US that got caught in the US housing crisis because home loan rates fell but everyone was locked in on higher fixed rates

      Unfortunately it’s going to be bad for AUST this time

      • Frank the problem will be valuation issues so you can be trapped
        This happened in the US
        Ask anyone from Perth they’ll tell you the issues
        East coast hasn’t really experienced refinancing difficulties
        Many in perth wouldn’t have been able to move banks
        They’ll understand the pitfalls

  3. Bcnich, I’m hearing you. Walked to the bank this morn an rolled 300k in an offset acc off the loan and asked for the title. I was thinking of using it for investment, but want nothing to do with the banks any more.

    • Just watch out for title theft, there is some value in having a $50 mortgage and banks holding the title.

      • How would/could that happen? I have not heard of that. I would have the piece of paper, but I presume it would be registered in the titles me as well?