As interest rates rise, Australia’s big banks raise the rates on their fixed-rate home loans.
SYDNEY (Reuters) – Spokespeople for Reuters said that two of Australia’s largest home lenders raised fixed-rate home loans because their own borrowing costs went up. This added to the pressure on a housing market that has slowed down because of rising interest rates.
Representatives from Commonwealth Bank of Australia (OTC:CMWAY), which has a quarter of all loans in the country’s A$2 trillion ($1.4 trillion) mortgage market, and Australia and New Zealand Banking Group Ltd, the fourth-largest lender, said Thursday that they raised fixed-rate loans by 1.4% and 0.9%, respectively.
A spokesperson for HSBC, a smaller lender with A$28 billion in mortgages, said that it also raised its fixed-home rate by 1.5 percentage points.
These increases were different from the increases in variable-rate loans that came after the Reserve Bank of Australia (RBA) raised interest rates in the past two months. However, they do reflect predictions of more RBA tightening in the future, which will cause property prices to go down.
Brendan Coates, director of the Economic Policy Program at the Grattan Institute, a think tank, said, “It’s a sign of things to come in the variable rate market.”
“During Covid, prices went up in part because people thought that interest rates would stay low for a longer time. This is how the world has been turned upside down.”
At the height of the pandemic, when interest rates were very low and the RBA said they wouldn’t go up until 2024, property prices in Australia went up by a quarter in just one year. But rising inflation caused the RBA to throw out that prediction, and government data coming out on Friday is likely to show that house prices fell for the second month in a row.
When people who took out fixed loans with very low rates have to refinance, “they will be looking at a very different rate environment, where rates could be more than double what they were before,” said Sally Tindall, head of research at RateCity, a website that compares loans.
At the middle of 2021, rates were very low, so nearly half of all new loans were fixed. RateCity says that by April 2022, 16% of all new loans will be fixed.
A CBA representative said that the change in fixed-rate loans was caused by “increases in funding costs and the current state of the market.” Most of the time, banks tie their fixed rates to the global money markets, where rates have gone up by more than three times since the beginning of 2022.
(1 dollar equals 1.4505 Australian dollars)
