Fixed mortgage rates ratchet higher

While economists continue to debate the timing of when the Reserve Bank of Australia (RBA) will begin to lift the cash rate from its all-time low of 0.1%, Australian fixed fixed mortgage rates continue to ratchet higher.

Data released yesterday by the RBA shows that new fixed mortgage rates rose further in January, while variable rates continued to trend lower:

RBA new mortgage rates

Specifically:

  • New fixed mortgage rates of less than 3-years’ duration have risen from a low of 1.95% in May 2021 to 2.43% in January 2022 – an increase of 25%.
  • New fixed mortgage rates of greater than 3-years’ duration have risen from a low of 1.99% in  February 2021 to 3.07% in January 2022 – an increase of 54%.
  • New variable mortgage rates have fallen to an all-time low 2.52% in January 2022.

Comparison site Mozo has recorded similarly large rises in fixed mortgage rates:

Mozo fixed mortgage rates

Specifically:

  • 1-year fixed mortgage rates have risen from a low of 2.27% in November 2021 to 2.59% currently – an increase of 14%.
  • 2-year fixed mortgage rates have risen from a low of 2.22% in September 2021 to 2.87% currently – an increase of 29%.
  • 3-year fixed mortgage rates have risen from a low of 2.32% in July 2021 to 3.28% currently – an increase of 41%.
  • 4-year fixed mortgage rates have risen from a low of 2.37% in March 2021 to 3.69% currently – an increase of 56%.
  • 5-year fixed mortgage rates have risen from a low of 2.62% in March 2021 to 3.80% currently – an increase of 45%.

Finally, the RBA’s average mortgage rate data, released last week, showed a sharp 1.38% rise in 3-year fixed mortgage rates (from 2.1% in February 2021 to 3.48% in February 2022), whereas average variable mortgage rates remained steady at 3.45%:

The sharp increase in fixed mortgage rates is a key reason why Australia’s property market has stalled, especially across the most unaffordable markets of Sydney and Melbourne:

Australian house price growth

If/when the RBA begins lifting the cash rate, variable mortgage rates will also rise. This will inevitably drive Australian property values lower.

Unconventional Economist

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