A 25-basis-point move would push average variable rates higher and close off most sub-5% deals
Home loan products priced below 5% are expected to vanish from the market if the Reserve Bank of Australia (RBA) raises the cash rate to 3.85% at its meeting tomorrow, according to new analysis from Canstar.
A 0.25 percentage point increase, fully passed through by lenders, would push the average variable rate for owner-occupiers to 5.77% and the average investor variable rate to 6.02%, based on Canstar’s calculations. The number of lenders offering variable rates below 5.25% would fall from 42 to just four, and both fixed and variable rates under 5% would no longer be available.
For an owner-occupier with a $600,000 loan and 25 years remaining, a February move of 25 basis points would add about $90 a month to minimum repayments, assuming the rise is reflected in full in mortgage rates.
Canstar’s rate monitoring shows lenders have already been adjusting fixed pricing in anticipation of further tightening. Since the RBA’s 9 December cash rate decision, 60 lenders have increased at least one fixed rate, while only two have cut fixed rates over the same period. The number of lenders offering fixed rates below 5% has dropped to six, compared with 46 three months earlier. The analysis excludes green and introductory products.
Expectations among the major banks are aligned with this outlook. Commonwealth Bank, Westpac, NAB and ANZ are all forecasting a 0.25 percentage point increase in February, with NAB also projecting an additional rise in May.
Sally Tindall (pictured right), data insights director at Canstar, said borrowers should be prepared for the loss of remaining sub-5% options if the RBA acts. “If the RBA hikes tomorrow, home loan rates under 5% are likely to be relegated to the history books,” she stated.
“There are now just six lenders offering fixed rates under 5%. A February hike would almost certainly close the door on the last remaining options.”
Tindall also pointed out that last week’s CPI figures saw trimmed mean inflation land at an annual rate of 3.4% in the December quarter. This result overshot the central bank’s revised forecast of 3.2%,
“We’re now four years into the battle with high inflation and while great progress was made initially, the RBA is fast running out of time to get the job done,” she said.
“For a typical owner-occupier with a $600,000 mortgage, a February hike would add around $90 a month to repayments. While plenty of borrowers will be able to cop this on the chin, it comes on the back of an uptick in the cost of essentials such as food and the end of the electricity rebates. It could be the tipping point for those households already running on tight budgets.”
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