I tell you why CBA just hiked its fixed rates, and other banks are following.
So the chatter around finance circles that it might be time to lock in the super low fixed rates that are on offer right now.
They might not be here all that much longer, apparently. The AFR has the low down,
Borrowers are being encouraged to lock in part of their mortgage at a cheaper fixed rate as yet another lender hikes costs by up to 80 basis points for borrowers with smaller mortgage deposits.
ING Bank, the nation’s fifth-largest lender, has raised rates on one- to five-year owner-occupied loans by between 30 and 80 basis points for borrowers with less than 10 per cent deposit. There is no increase for investors.
Westpac, the nation’s second-largest lender, is flagging the prospect of more rate rises with the launch of a fixed-rate lock-in that allows a borrower to secure an advertised fixed interest rate for up to 90 days before their home loan is settled. It costs 0.10 per cent of the loan amount.
It follows CBA, the nation’s largest lender, which lifted three- and four-year fixed rates this month, effectively ringing the bell on cheap rates and alerting borrowers to consider fixing before they move higher.
A CBA spokesman says the changes “reflect our long-term funding costs that have increased substantially and remain at higher levels after an extended period of low-cost long term funding”.
And that’s the rub. The AFR doesn’t explain it but bank funding costs are rising. Why?
Not that the RBA is hiking rates, talking about hiking rates, or even dreaming about hiking rates.
No. The RBA is just planning to wind up its TFF – the term funding facility.
This was an emergency measure they brought in during Covid. Effectively the RBA lent money to the banks at an ultra low rate of 0.1%, on fixed terms.
The banks in turn then passed this on to their customers in super cheap fixed rates.
And it’s why there’s been such a massive differential between fixed and variable mortgage rates lately.
But the good times couldn’t last for ever, and it now looks like the RBA will start winding up the TFF in June.
As a result, the differential between fixed and variable will have to narrow – back to normal levels.
So fixed rates will nudge up, but variable rates aren’t’ going anywhere until the RBA raises the cash rate, which is years away.
That said, there are some murmurings across international waters that the era of super cheap money might be winding to a close.
The clock is ticking on COVID-19’s emergency policy settings, as a raft of central bankers discuss the prospect of a world of higher interest rates to match an upswing in economic growth that is nowhere more apparent than in Australia.
The latest sign that a new world monetary policy order is approaching came on Thursday when Bank of England rate-setter Gertjan Vlieghe told an audience at the University of Bath that higher rates could arrive late next year.
… Mr Vlieghe’s comments came a day after the Reserve Bank of New Zealand resumed forecasting the official New Zealand cash rate. The RBNZ is now projecting an interest rate rise at the end of next year, a move that aligned with market forecasts of a recovering New Zealand economy.
Yeah. Maybe at the end of 2022. Maybe. And a lot needs to go right and keep going right for that to happen.
In particular, the massive amount of money printing we’ve seen since Covid needs to be unwound without stalling the economy.
I wouldn’t sweat. When interest rate hikes come, they will be slow and small.
But it’s still a long way off yet.