Home hunters face higher fixed mortgage rates, with further hikes expected
Home hunters struggling to break into the real estate market are warned that borrowing costs could rise sooner than expected, with some mortgage rates already rising and further hikes expected later this year.
While the Reserve Bank is not expected to raise interest rates until 2024, costs for longer fixed-term loans are already on the rise – only a handful of lenders still offering the ultra-low rates reached last year.
Four-year fixed rates at the Big Four banks are now all back above 2 percent, as the NAB raised its rate last week, following similar moves by Westpac and NAB earlier this year. The ANZ rate has never fallen below 2 percent.
Only three lenders are now offering four-year rates below this level, up from 25 at the start of the year, and they are unlikely to stay at such levels for long, said Sally Tindall, research director at RateCity. .com.au.
Thirty lenders have now raised at least a four-year fixed rate in the past two months.
“Banks are closing the door at record four- and five-year rates. Three-year rates are likely to be next, potentially in the second half of this year, ”she said.
Experts warned in March that competitive fixed rates had likely bottomed out, with bank financing costs rising past the June 30 deadline for a pandemic-era program that offers three-year funding. cheap to lenders to cut costs, and in turn. reduces interest rates for borrowers, this is called the RBA Term Finance Facility.
Ms Tindall said the recent increases were the “canary in the coal mine” for borrowers, showing that banks had already started to factor in future increases in financing costs and interest rates.
Those who fix at ultra-low rates would likely face “very different” borrowing costs in a few years, Tindall warned. As banks create a buffer, borrowers need to make sure they would be comfortable with increased repayments in the future – especially those already struggling to keep up with rapidly rising house prices. .
“A lot of people are taking bigger loans right now – bigger debts because they are setting at record rates, in two or three years they will be facing rates of return that are significantly higher,” he said. she declared.
She said more than a third of borrowers from major banks had secured loans in recent months, with up to about 46 percent of new loans secured at NAB. While four-year terms had been popular for offering ultra-low rates, borrowers were now expected to revert to short terms.
Mortgage broker Azm Khan, director of Yellow Brick Road Parramatta, had previously seen more borrowers opting for shorter fixed terms, but said the number of clients looking to repair some or all of their loans was still under rise.
“[The recent rate increases are] definitely have an impact, just [this week] I had to change a client’s request from a four-year fixed loan to a three-year fixed loan because the four-year rate went up, ”Khan said.
“People say, ‘We should get in before the tariffs get out of our reach’, [but] of course, there has already been an impact on their ability to borrow [on longer fixed terms], especially for investors, first-time homebuyers can get similar rates over a period of two or three years. “
Wider demand for home loans and refinancing has cooled off a notch, Khan noted, with increased interest from HomeBuilder, the world’s leading home loan deposit system and historically low interest rates. , after making good progress in the system. But investor demand was on the rise.
Mr Khan expected more borrowers to revert to variable rates in the coming years as banks offered them better deals as fixed rates climbed. Borrowers should look for good discounts, he added, but warned that variable rates would also rise over time and could expose borrowers to sharper rate hikes.
It was a similar story at Aussie and Lendi, with both groups seeing an increase in the proportion of customers fixing their loan rates, said Lendi Group CEO David Hyman, also director of Domain Home Loans.
Refinancing activity has been incredibly strong over the past year, he noted, with a significant proportion of clients taking some sort of fixed rate approach to take advantage of the current low rates and mitigate the impact. potential price increases in the medium and long term.
“One thing is for sure that rates won’t stay at record highs forever, so you need to be able to meet your repayments when conditions change,” he said.
Hyman cautioned that choosing the right loan is not just about securing the lowest rate, and urged borrowers to also consider the features, flexibility, and fees most suited to their goals and needs. needs.