VC funding gives us a taste of what’s to come.
There’s still a lot of chatter and speculation about what’s going to happen to Aussie mortgage rates.
That took on a whole new level of intensity last week as we watched New Zealand central bank hike rates by an unexpectedly aggressive 50 basis points. (25bps is your standard way of doing things.)
That took the official cash rate up to 1.50%, with the official outlook heading towards 2.2% by the end of the year, and 3.3% by the end of next.
That makes Australia’s current official cash rate setting of 0.1% look decidedly tiny, although to be fair, inflation in NZ is considerably worse than it is here.
But still, it got a lof of pundits wondering if the RBA might go for something similarly aggressive and heroic after the election is out the way.
Possibly. But I doubt it.
And the truth is, rates are already going up in Australia… and they’re going down.
They’re going up because fixed rates are going up.
Thanks to the RBA’s Term Funding Facility, we enjoyed super-cheap fixed interest rates all through Covid. They got down to some ridiculously low levels, which is exactly what the RBA wanted.
But 2020 was two years ago, the Term Funding Faciliy has ended, and fixed rates have normalised – i.e. gone back to what they would have been if the RBA wasn’t messing with things.
As a result, average fixed rate mortgages have picked up about 100bps.
That’s a substantial lift.
And because fixed rates were so low for so long, we had millions of borrowers across the country move on to fixed rates.
At some point, almost 50% of CBA’s new lending was to fixed rate mortgages (It’s normally more like 15%).
And why wouldn’t you, with rates that low.
What it means though is that there’s a lot of people on fixed rate loans due to ‘reset’ in the next year or two. That is, they’re current fixed rate will end, and they’ll be forced onto something higher.
So in that sense, the Aussie mortgage market has eaten a couple of rate hikes already, even before the RBA has touched the rate-hike lever.
At the same time though, variable rates are falling.
The mortgage market is becoming more competitive, and that competition is driving rates lower:
More than 70 lenders are offering headline variable rates of less than 2 per cent and other incentives, such as new rounds of cashback guarantees, in a bid to attract new borrowers or encourage existing borrowers to switch, says RateCity, which monitors lending markets.
A cashback reward program is a scheme offered by a lender where an upfront cash payment is made to the borrower to cover switching costs.
It’s not massive. It’s not 100bps. But it’s there.
So it’s an up and down market.
The rise in fixed rates means the RBA will be happy to be patient. At the same time, the ‘reset’ to variable rates won’t be as bad as it might have been, thanks to competition in the mortgage market.
It’s steady as she goes.
Thank your stars to live somewhere boring.