Australia’s largest bank surprises the credit market with massive fixed rate hikes
Australia’s largest bank suddenly hiked its fixed rates for homeowners and investors by a massive 1.4 percent on June 30, a move that has taken the credit market by surprise.
According to an analysis by the financial comparison portal RateCity, the Commonwealth Bank of Australia (CBA) has raised its one-year fixed interest rate for owner-occupiers to 4.99 percent, 2.90 percent more than in the previous year.
Similarly, the bank’s five-year fixed rate rose to 6.69 percent, up 3.7 percent from the previous 12 months.
CBA also lowered its lowest variable home loan rates by 0.15 percent to 2.79 percent and 2.89 percent for homebuyers with a 30 percent down payment and 20-29.99 percent down payment, respectively.
RateCity Research Director Sally Tindall said the CBA’s fixed rate hikes were a typical move.
“The bank is responding to the rising cost of fixed income financing and a market that refuses to believe the Reserve Bank of Australia will raise interest rates to around 2.50 per cent,” she said.
Tindall also noted that the bank was offering fixed rates less than 2 percent lower than a year ago. However, recent changes have pushed the CBA’s lowest fixed rate below 5 percent and most other interest rates above 6 percent.
“It’s amazing to see fixed rates move so dramatically in such a short period of time,” she said.
“The below 2% fixed rates of 12 months ago now seem like a distant dream.”
Fixed rate loans make up a small percentage of the market
Referring to the CBA’s fixed rate hikes, Peter Tulip, chief economist at the Center for Independent Studies, told The Epoch Times that the development was not a “big deal”.
“We went through a period when fixed-rate loans were unusually popular, peaking in August 2021 at 46 percent of home loans,” he said, citing data from the Australia Bureau of Statistics.
“We’re now going back to a more normal situation where fixed-rate loans are a small portion of the total.”
In addition, Tulip said that financial markets are currently anticipating a rapid rise in floating and fixed interest rates. As a result, other banks would soon follow the CBA and raise rates as well.
“In terms of impact, large hikes in mortgage rates will lead to a drop in house prices and a significant slowdown in construction activity,” he said.
The CBA’s changes to fixed interest rates come as economists expected the Reserve Bank of Australia to hike interest rates by another 0.5 percent to 1.35 percent at the next board meeting on July 5.