CBA follows Westpac move to hike fixed rates amid higher costs environment

Home loans are on the march, with the country’s largest lender Commonwealth Bank joining Westpac in raising fixed rates for borrowers.

CBA is the latest to hike fixed rates. Picture: NCA NewsWire / James Gourley

Home loans are on the march, with Commonwealth Bank joining Westpac and others in raising fixed rates for borrowers.

The move by two of Australia’s biggest banks this week is pointing the way for the home lending market, after the Reserve Bank of Australia was forced to back down on its attempts to keep short-term debt costs low.

On Friday CBA hiked its fixed rates for the second time in two weeks, meaning the nation’s largest bank is no longer advertising home loan rates under 2 per cent.

Its previous sub-2 per cent loan - the one year fixed rate offering - was lifted 35 basis points to 2.34 per cent, while its four year fixed rate offering was jacked up 50 basis points to 2.89 per cent.

It comes after Westpac lifted its home loan rates on Thursday, bringing rates on its three, four, and five-year fixed rate packages up.

The bank lifted its three-year fixed rates by 0.21 per cent, while pushing up the four and five-year products by 0.1 per cent.

The bank’s stablemates St George and Bank of Melbourne also jacked up costs on their two, three, four, and five-year fixed rates.

However, both banks cut rates on their variable rate loans by 0.1 per cent.

In the last month 25 lenders have lifted five-year fixed rates.

Just this week Macquarie and Suncorp both hiked fixed rates across most loans.

RateCity research director Sally Tindall said it was likely the Reserve Bank of Australia’s shift in monetary policy this week spurred the move from Westpac.

“We expect more banks will hike fixed rates in the weeks and months to come, with some likely to hike multiple times in response to improving economic conditions,“ she said.

“For anyone thinking about fixing their rate, it’s not too late to get a good deal. However, in this environment where banks are falling over each other to announce their fixed-rate hikes, people might want to consider paying a rate lock fee.”

Australia’s hot housing market is set to face rising fixed rates in coming months. Picture: Darren Leigh Roberts

However, RateCity said variable rates at many banks were continuing to fall as lenders chased new customers.

RateCity said 27 lenders had cut variable rates in the last month.

NAB is currently offering the lowest ongoing variable rate cost at 2.29 per cent.

Westpac is offering 1.99 per cent for two years, followed by 2.49 per cent.

“For the last year and a half variable rates have broadly lagged behind fixed, so it’s great to see competition pick up in this space,” Ms Tindall said.

“That said, these cuts are only for new customers so people will have to be prepared to switch lenders, or at the very minimum, haggle with their existing bank.”

The upwards pressure on fixed rates comes as banks are grappling with rapidly changing expectations around future interest rate rises.

As part of its pandemic relief measures, the RBA moved in 2020 to offer Australian lenders access to a $188bn fund, provided at low-cost fixed rates.

This Term Funding Facility, set to run through until mid 2024, was seized on by banks to lower fixed rate loan products.

But on Tuesday RBA governor Philip Lowe said the bank would abandon its target rate on the benchmark bond.