October 29, 2013
Late last week, all 4 big banks and some others including Suncorp, and ING, raised thier 3 year fixed rate loans. More are likely to follow thier lead. What does this mean?
According to Nila Sweeney, from Your Mortgage, "The latest move by Australia's major lenders to raise rates on their fixed mortgages has prompted speculations that the economy has bottomed out and variable rates are about to rise. " A controversial speculation at least.
The interest rate moves in the 3 year fixed rate products by all these lenders has prompted Stuart to put it out there, it might be time for you to look at a rate lock option. Meaning, perhaps it is time to fix your rate, before they increase any further.
Please contact us if you would like help with the process.
To give you an idea of the lender's movements on their 3 year fixed rate products as at Friday 25th October:
Suncorp increased by 0.10% to 5.08%
NAB (Homside) increased by 0.20% to 5.19%
ANZ increased by 0.20% to 5.34%
Westpac increased by 0.40% to 5.79%
CBA increased by 0.44% to 5.79%
ING increased by 0.20% to 5.89%
From a Mortgage broker's perspective, when you see an increase in the fixed rates, it's generally an indication that rates will not remain in a low environment in the medium to long term.
The increase has come as a surprise however, as many analysts argue that we have not hit the bottom of this cycle yet.
Some other market perspectives on why these rates have been increased includes:
- Fixed rates are offered to the market by the banks based on supply and demand so when they are going up, there is more demand for fixed rates than what's being supplied. The banks with demand have increased the rates accordingly.
- Michael Lee, founder of Key Facts, said that their fixed rate funding costs have risen, but they might also want a larger slice of profit on that product line. "Demand might be outweighing available funds, or they may simply want to spook the public. Even allowing for time lag, an increase or decrease in fixed rates is not always a pre-cursor to the same directional movements in variable rates as the two are not directly linked," he said.
Why would you lock in your interest rate?
Generally people lock in rates is because they are concerned that interest rates are going to increase drastically and they are worried about their cash flow.
But are the lenders increasing just one of their fixed rate products now, and demonstrating that they are banking on that fear factor?
Do they want to make sure they have the best chance to earn a profit at the expense of the consumer's fears?
It's very diffuclt to answer that without being a fly on the wall in all of those lender's interest rate discussions!
Is now a good time to fix?
- If you are a first home buyer - fix at around6% if you can't afford any increase of interest rate during recession. Considering the average interest rate of the last 30 years is around 10%, fixing at around 6% is generally a smart move.
- If you are a property investor - fixing at around 6% interest rates can turn most of your properties into neutral or positive cash flow for the first time, IF , it is at 60-80%LVR and 5-6% rental yield. Perhaps it is a safe bet to fix now, rather than waiting for fixed rates to go down even further.
Before you take a fixed rate loan however, be warned that there is hefty costs involved if you decide to exit the loan before the fixed term expires. Have a plan for your property. If you are planning on selling within that fixed rate term, variable is the safe bet for you.
Please contact us for any further information, we'd love to hear from you.
Please see the link here for related article in full. (Image courtesy of www.dixonfg.com.au Oct 29th 2013)