Aussie mortgage rates soar ahead of RBA hikes

The Reserve Bank of Australia (RBA) has updated its monthly mortgage data, which shows rates rising rapidly before an increase in the official cash rate (OCR),

As shown in the next chart, fixed mortgage rates for new borrowers have climbed sharply since bottoming in the first half of 2021:

New Australian mortgage rates

New fixed mortgage rates have soared.

After bottoming at just 1.95% in May 2021, owner-occupier fixed rate mortgages with terms below 3-years hit 2.58% in February 2020, representing an increase of 0.63%.

The rise has been sharper for fixed terms of greater than 3-years, which have risen from a low of 1.99% in February 2021 to 3.27% in February 2022, representing a rise of 1.28%.

However, new owner-occupier variable rate mortgages continued to trend lower, hitting a record low 2.5% in February 2022.

The RBA’s data on total outstanding mortgages is current to March 2021 and shows that both fixed and variable mortgage rates have risen:

Average Australian mortgage rates

Both fixed and variable mortgage rates rose in March 2022.

The 3-year average fixed mortgage rate rose from a low of 2.1% in March 2021 to 3.8% in March 2022 – an increase of 1.7%.

After bottoming at 3.45% between August 2021 and February 2022, average variable mortgage rates also rose 0.15% in March 2022 to 3.6%.

Australia’s bank economists forecast the RBA will lift the OCR by between 1.15% (CBA) and 2.15% (NAB), whereas the futures market is tipping a jumbo rise in the OCR of around 3.5%.

If the CBA’s lower forecast comes to fruition, and the RBA hikes the OCR to only 1.25%, then this would increase average mortgage repayments by 15%, or by around $400 per month on the median priced Australian home (assuming the OCR is fully passed on to mortgage holders).

However, if the futures market is correct and the RBA hikes the OCR by around 3.5%, then the median Australian mortgage repayment would soar by 48%, or by around $1280 per month:

Projected mortgage repayments

The surge in fixed mortgage rates is one of the reasons why house price momentum nationally has stalled, led by falls across the more expensive markets of Sydney and Melbourne.

Therefore, with the OCR almost certain to lift sharply from mid year, a house price correction is all but baked in. The only question is how far?

If rate hikes follow the CBA’s profile, then the price correction should be moderate (circa 10% fall). At the other extreme, if the market is right on rates, then brace for a full blown price crash (i.e. greater than 25% fall).

For what it is worth, I am firmly in the CBA’s camp on interest rates for the simple fact that Australians are so indebted and sensitive to rate rises that going much higher risks crashing the market and hammering the economy.

Unconventional Economist


  1. Is anyone able to please outline how one could trade against the ridiculous market rate prediction on the asx? Bonds?

    • 30 day interbank cash rate future trade on the SFE. the notional is $3m and given how they price, the value of a single contract is $246k (april 22 contract). not sure what the margin requirements are, that will be limiting factor, unless you’re a zillionaire. there’s also limited liquidity into 2023, but if wanted to go beyond 12 months, would stick with bonds. however unless you can lever into bonds eg via 3yr bond futures, what you will make off short duration cash bonds (5/8ths of fa) renders the whole exercise pointless

    • Fundamentally you need to lend long and borrow short. Banks can profit from this pretty easily since they can lend long to home owners and decide if they wish that the markets are wrong and finance the loan book with short term money. If they are right they didn’t have to pay the higher FO rates on the market and their margin will be massive.

      Effectively think of any way you can borrow money cheaply and finance it back into this asset class with leverage. I’m not really aware how this is possible easily for a retail punter however – you don’t get the rates that institutions do typically.

    • The Grey RiderMEMBER

      What makes the market’s prediction ridiculous?…why can’t interest rates rise irrespective of the impact on the housing market?…needs must as the devil drives, as they say.

      As BoomEng highlighted a few days ago, didn’t stop them from 1987 to 1991.

  2. What stops someone from just getting 100% variable rate right now?

    Does not look like that is ticking up.

    • happy valleyMEMBER

      The banks are holding that low to continue getting the sucker bait in for loans (read: slaughter), ahead of pumping it up when the banks want to clean up on profits and more importantly, senior management bonuses.

      • alwaysanonMEMBER

        I think you might be right. I was on a fully variable at 2.49% with ING for the last couple years when I noticed they were offering new customers 1.99%. So I called and she was willing to reduce it to 2.24% – but was somewhat incredulous that I didn’t want to sign up to fix at least part of it instead. “You know these are likely to go up soon right?”.

        I listened to Leith and am thinking/hoping they don’t raise by as much as is feared so sticking with the variable for better or worse. This reduction I am hoping was the first raise out of the way ‘for free’ too. We’ve been paying triple the payment most months and I like the flexibility to pay it off as fast as we can over the more restrictive fixed options there. My friends/colleages think I am crazy not investing that money instead – but my wife’s dream is getting out of debt and owning the house outright and just plowing all our savings into the house certainly seems the ‘safest’ option with all the uncertainty in markets (shrug).

      • Jumping jack flash

        I’m on fully variable but my rate is quite a lot higher, around 3.5%. It was recently renegotiated as well. I’m hoping that when it goes up it will just go back to where it was previously.

        I did some quick calculations and discovered it could actually double before I would need to pay any extra on top of what I already pay.

        Of course the only reason I can pay so much presently is because of the last decade or more of debt availability, eligibility and spending enabling my wages to be at the level they are. It is highly likely that this will change as the amount of new debt created and debt spending reduces.

  3. So house prices are Allowed to go up during a so called covid recession by 40% but it’s a crash if they drop 10-15%? OK BOOMER

  4. There will be a lot of first home buyers discussing whether the missus needs to get on onlyfans.