Fears of inflation lead to a rush in setting home loan interest rates

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The race is on for the Aussies to set their mortgage rates as concerns grow that they will soon rise. (Source: Getty)

The Reserve Bank of Australia may have decided to put record-low interest rates – again – on hold, but that hasn’t stopped borrowers from setting fixed mortgage rates before they’re expected to rise.

The RBA announced Tuesday that it would keep the cash rate at 0.1 percent despite booming property prices across the country and creating an affordability crisis.

With ongoing signs that the economy is recovering faster than expected from the COVID-19 pandemic – including prolonged lockdowns in Melbourne and Sydney – speculation is growing that the RBA will raise official interest rates before the forecast 2024 date.

However, it hasn’t stopped all four of the big banks – CommBank, Westpac, NAB, and ANZ – from raising their fixed rates while lowering their floating rates. UBank, Bank of Queensland and People’s Choice Credit Union have since followed in their footsteps.

The banks’ out-of-cycle rate hikes were driven by rising borrowing costs.

Evan Lucas, chief marketing strategist at Investsmart, said there was no doubt that mortgage holders are keen to get the best deals possible.

“If you look at the number of applications submitted, it is above historical norms, there is no doubt about that,” he said.

“People want longer [loan] Conditions; Most people shop in two years as this is the most competitive right now. The banks are trying to push people into the time they expect the RBA to make a change. “

Aerial view of a typical green Australian suburb

Australian house prices braved the adversity of the pandemic, which hit other areas of the economy. (Source: Getty)

Real estate boom

House prices, especially house prices, have continued to skyrocket across the country, up 22 percent this year alone, with rising demand driving prices further north. Despite warnings that the pandemic could cause house prices to plummet, the market only eased before quickly recovering.

The consumer price index for the September quarter was released last week and rose to 2.1 percent, its highest level since 2015. According to the ANZ survey, the job posting rose 6.2 percent, the level before the delta breakout is equivalent to.

Lucas recommended anyone considering switching to a fixed term home loan to carefully compare fixed and floating rates, as fixed rates don’t necessarily make the best deal.

“Don’t forget to ask what happens when the fixed price ends, what will the price be after that?”

As record-low interest rates helped people borrow more and keep house prices rising, Lucas said there were concerns about whether some borrowers would be able to weather the impending interest rate hike.

“It has been over 10 years since the RBA raised the cash rate,” he said.

“The debt to income ratio is nerve wracking as many people have borrowed six to eight times their income; that the pressure to repay their debts is mounting, especially in places like Melbourne and Sydney. The increase could be not just hundreds of dollars, but thousands of dollars. “

The RBA last cut the cash rate in November 2020 to cushion the impact of COVID-19 amid widespread job losses and layoffs.

At the time, RBA Governor Philip Lowe said interest rates would stay the same until inflation rose sharply, but added that it would not happen until wages reached steady growth.

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