Pool of sub-5% fixed rate deals contracts
Inflation data has prompted lenders across Australia to reassess their fixed rate pricing strategies, resulting in a significant shift in the market over the past month.
Since the beginning of November, 18 financial institutions have increased at least one fixed home loan rate. This movement includes rate rises from major lenders Westpac and Macquarie Bank. In contrast, only nine lenders have reduced rates during the same period.
This repricing has narrowed the pool of competitive options available to borrowers. Data compiled by Canstar demonstrates that the number of lenders providing fixed rates below 5% has contracted to 36, down from 46 a month prior.
Despite this contraction, competitive rates remain accessible. First-time purchasers can secure fixed rate products at 4.6% for a two-year term, while established homeowners have access to rates of 4.74% for terms of two or three years.
Is it time to lock in rates?
For borrowers contemplating a switch to fixed rate products, the decision can be a bit tricky. Market uncertainty regarding the Reserve Bank's future direction means the calculation of optimal timing involves multiple variables.
Canstar analysis examined two scenarios for a typical owner-occupier with a $600,000 loan and 25 years remaining. If the borrower selected the lowest available two-year fixed rate instead of the lowest variable option, and interest rates remained unchanged, they would save approximately $2,981 in interest payments over two years.
If the Reserve Bank implemented two further rate reductions – as Westpac has predicted – and banks fully passed these decreases to variable rate products, the borrower would face an additional $1,072 in interest charges compared with remaining on variable rates.
Inflation figures released yesterday, however, point to the likelihood of interest rate increases in the coming year.
"We're already seeing fixed rates creep up as markets recalibrate their prices on the back of rising inflation. With another round of data confirming inflation is proving problematic, more hikes are likely to follow," said Sally Tindall, data insights director at Canstar.com.au. "That said, some of today's lowest fixed rates are still sharp, particularly for people who want the safety of predictable repayments.
"If you are considering a switch to fixed, run the numbers based on a range of scenarios, but also take a step back and work out which option suits your finances better. Fixing can buy certainty, but it also means giving up the chance to benefit from any cuts. Don't rush the decision, but instead shop around, because while some lenders are already on the move, there's still competitive rates to be found."
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