Ultra-Low-Rate Era is Officially Over
The last few weeks has been the most active that many brokers can remember, with rates chopping and changing across the Big Four and second tiered lenders now following suit. The channel saw lenders hiking fixed rates across the board, slashing variable rates, then hiking again, then slashing again.
Since the RBA cash rate decision on Melbourne Cup Day, there have been historic fixed rate movements at the Big Four banks, with 50 points added at CBA & NAB, 40 at ANZ and 21 points at Westpac. At the same time, ANZ took 43 points off their variable rate and Westpac took 10 off theirs. It was enough to make brokers sit back and wonder about the last time that they had seen such uncertainty in the market. Sub 2% rates are essentially over.
Everyone thought, with the threats to jobs due to Covid-19, that lending was going to really slow down. In fact, the opposite happened. People kept their jobs, fixed rates dropped dramatically, and people went for it. They got pre-approvals and realised they could borrow more. It is close to being the highest level of uncertainty in terms of people seeing rates rise quickly and they don’t know when that’s going to stop. Especially when they see all of the Big Four have raised their rates multiple times in the last month, with Westpac now onto their fourth change.
There are people out there with pre-approvals, hoping to lock in a fixed rate, which are now going to miss out on those historically low rates because they can’t find a property. Many of whom are first home buyers. The RBA decision spiked a spiral of interest rate rises after they officially abandoned plans to hold the rate steady until 2024, instead leaving an open-ended schedule for revising the cash rate upwards.
Either way it means it has and continues to be a very busy time. Certainly, for those that have found a property it will be necessary to compare the difference in cost between the fee to lock the rate and the overall cost of the increase in the interest rate (prior to settlement). If you are going to save interest during the fixed period, then it makes sense to lock in your rate prior to settlement. An individual calculation and discussion is needed. For those with a pre-approval you will need to reassess once you are close to purchasing a property as the market is constantly changing.