Fixed rates are going to increase

Discussion in 'Loans & Mortgage Brokers' started by Redom, 20th Oct, 2021.

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  1. Redom

    Redom Mortgage Broker Business Plus Member

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    With signs of inflation appearing and other central banks increasing interest rates recently, the market is beginning to price in interest rate rises well before the RBA is signalling them actually happening.

    This will push up the cost of fixed rate funding for banks and will then get passed onto customers. As a guide, the three year bond yields are up 40 bps this month alone.

    We are starting to see fixed rates increase.
    • CBA, Westpac, others have moved up 0.10%, and more will likely come soon.
    What borrowers should do?
    • For those considering fixing, now may be the time to do so.
    • For those applications currently in progress on fixed loans, you may consider rate locking if your settlements are a while away. This usually costs around 0.10% of the loan amount sought, but could save you a fair bit in current conditions where rate rises are likely.
    • For those on existing fixed rates, it's likely best to let it play out and reassess once the expiries actually happen. Breaking fixed rate loans often costs a fee.
    What impact will it have on the market?
    • Very low fixed rates have driven owner occupier borrower rates below 2%. Variable rates are in the early to mid 2's. The ~50bp spread will likely close, driving up borrower rates overall.
    • The main reason why markets are firing is given very low interest rates. Small adjustments to fixed rates alone won't slow the market, but it may only be the start to rate rises for Aussie borrowers.
    Does this mean RBA rate rises are coming?
    • No signals by the RBA have been made indicating any upcoming rate increases.
    • They have also set a very high hurdle before rates rise and will wait more data before adjusting their communication on the timing of rate increases. These hurdles indicate that they will be slower and conservative in increasing interest rates.
    • Nonetheless, most believe that rate rises will occur before the 2024 guidance that has occurred.
    Screen Shot 2021-10-20 at 3.08.13 pm.png
     
  2. Redom

    Redom Mortgage Broker Business Plus Member

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    ANZ have gone much bigger on the rate rises, with ~0.20-0.35% rate increases across a range of fixed products.

    Interestingly 1 year fixed rate has come down a little.

    I.e. they are pricing in low rates for a year before rate rises later in the yield cycle.

    We are moving closer to having fixed/variable rates back closer to parity on 2-3 year products vs variable (not for INV loans yet which has some premia for variable flexibility).
     
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  3. Redom

    Redom Mortgage Broker Business Plus Member

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    BIG moves coming, BW first larger lender to move materially, up 60-70 bps (+discounting).

    These products have been priced around 1.89-1.99 after discounting....now repricing at 2.7-2.8%.

    That is a very material increase, one of the largest we've seen in one movement.

    Screen Shot 2021-11-03 at 12.05.40 pm.png
     
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  4. Tattler

    Tattler Well-Known Member

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    Thanks for flagging this. I am now looking at the rate-locking of one of my loans that is currently in refinancing process to CBA .....
     
  5. Redom

    Redom Mortgage Broker Business Plus Member

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    CBA at 375 per rate lock is quite cheap for larger loan sizes vs others.
     
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  6. momentum26

    momentum26 Well-Known Member

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    When is revised fixed rate coming into effect from?
     
  7. Redom

    Redom Mortgage Broker Business Plus Member

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    They generally don’t give notice (or much). Changes applied for Thursday (tomorrow).
     
  8. momentum26

    momentum26 Well-Known Member

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    I have settlement booked tomorrow with BW. I wonder if they will offer 1.89 or the revised? No rate lock opted
     
  9. Redom

    Redom Mortgage Broker Business Plus Member

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    Interesting one, i think the 1.89 will be applied if it’s same day but not sure. Would be interested to hear how it goes.
     
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  10. momentum26

    momentum26 Well-Known Member

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    Will update how that goes. All the damn coincidences has to happen with me!
     
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  11. momentum26

    momentum26 Well-Known Member

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    1.89% not offered even though the loan settled next day from when the rates changed. Any options anyone can recommend that are worth exploring to push and get 1.89% in someway or other?

    Curious to know what rate was offered to other clients for fixed home loan settling today.

    It sounds like a very haste change on a short notice of under 5 hours when comms were sent to all brokers. Usually lenders would give about 1-2weeks
     
  12. ParraEels

    ParraEels Well-Known Member

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    Similar thing happened to me in past with Westpac. apparently, they don't have to give long notice regarding changing fix rate...
     
  13. momentum26

    momentum26 Well-Known Member

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    I wonder if I can switching banks inspite of fixed loans will carry any major break fees? $1m plus loans at increase 60 pts in interest is surly going to cost more than switching to the likes of HSBC which offer 1.88% with $3200 in refinance.
     
  14. ParraEels

    ParraEels Well-Known Member

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    By the time you refinance a new loan, HDFC may have a catchup with other lenders and you may end up paying the same. fix rate raised due to crazy bond yield and the most bank will increase the rate as their cost has increased.
     
  15. Redom

    Redom Mortgage Broker Business Plus Member

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    Thats harsh. Banks rarely, if ever, give 1-2 week warnings on fixed rate movements.
    Not sure what can be done, worth speaking to them and seeing if there's any wiggle room.
     
  16. momentum26

    momentum26 Well-Known Member

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    I checked with the bank they will not make exceptions. I asked them what’s involved if I break the fixed loan. They said the break cost involved is $50.

    I think I am better off ditching BankWest asap then?
     
  17. euro73

    euro73 Well-Known Member Business Member

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    Also called a 2-3 year risk earlier in 2021 when things were starting to get nutty....

    Blind Freddy could ( or should) have seen that APRA needed to impose larger servicing buffers when they introduced the emergency cash rate late last year and then became the buyer of all 1,2 and 3 year RMBS mortgage bonds, providing lenders with a tranche of artificially low funding that was always going to re-set to much higher rates 3,4 and 5 years down the road as those books rolled off RBA funding rates to global funding rates. The difference between the two is in the 65-75bpts range , so it's not a matter of IF , rather a matter of WHEN lenders move 65-75bpts for fixed rates.

    It will probably be 2 -3 years or so before most the current fixed arrangements roll off , so assuming no variable rate increases in that time, you will see at least the equivalent of 2 - 3 cash rate rate rises for everyone who has piled into cheap fixed rates in the last 12 months or so. So there's the 2-3 year risk right there. Of itself it may or may not be much of a thing, but with inflation pressures not just building but already arriving , its unlikely the RBA will avoid at least 2 or 3 cash rate increases in that time.... so add 2 + 2 together and we may be looking at retail rates to borrower of at least 1.25 - 1.5% higher than today . That starts to become a thing, potentially. But if wage growth comes along it may be OK. Point is, there is some clear risk ahead. Whether its really a problem or not remains to be seen.... but what all of this does signal is the fact the easy money era is winding down. Money is still cheap. Just be careful how much debt you take on without accounting for it becoming a little less cheap.

    #aheadofthecurve
     
    Last edited: 5th Nov, 2021
  18. SuperOlaf

    SuperOlaf Well-Known Member

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    Westpac has joined the party according to the Fin Review. 3-year fixed rate for owner-occupiers goes up by 21 basis points to 2.29 per cent; and the 4-year and 5-year up by 10 basis points to 2.69 per cent and 2.99 per cent.

    I guess all good things come to an end at some point.
     
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  19. Redom

    Redom Mortgage Broker Business Plus Member

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  20. Redom

    Redom Mortgage Broker Business Plus Member

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    May be worth it but get an app in quickly and rate lock. A couple don’t charge for this for 60 days and have some decent/rebates/terms for something like this.