Get ready for higher mortgage rates

Mortgage rates are going up this year regardless of what the RBA does.

Never mind the RBA leaving rates unchanged. Mortgage rates are going up regardless of official rate settings. Moreover, they are expected to move higher again later this year.

Despite widespread forecasts of further official rate cuts in 2017, the banks are taking little notice of these predictions — even from their own economists.

In fact, the major banks have been continually pushing through higher rates for fixed loans, interest only loans and investor loans in the last three months.

New figures from rate comparison service RateCity show all of the major banks have been lifting rates since the election of Donald Trump in the US in November triggered a worldwide lift in commercial rates.

Banks have found it much easier to raise rates discreetly since the loan market has split into a range of categories, particularly the return of separate pricing for owner-occupier and investor loans.

Though the recent increases appear modest — typically less than one quarter of a percentage point — the crucial aspect for consumers is the switch in direction and momentum. Rates had been falling for more than five years before Westpac moved on November 28 last year with selected increases to fixed loans for owner occupiers and investors.

Though a range of leading financial institutions still expect official rates to keep dropping this year, our most popular banks are lifting rates relentlessly. The latest batch of increases came from NAB on January 16 with a range of changes to investor loan rates, NAB had already put through limited increases to this sector on December 12 last year.

Moreover, irrespective of what happens in the RBA boardroom, analysts who are closest to the action in the commercial markets expect commercial rates to keep pushing higher.

Peter Arnold, the data director at comparison service RateCity says: “The section of the market that has managed to avoid the increases is the owner occupier on variable rates, but we see raises in this area as the next move. We already know a lot of owner occupiers are quite leveraged, so it will be very interesting to see what happens when this comes to pass.”

Coupled with up-tempo comments on the Australian economy from the RBA, the banks will seek to justify the rate lifts citing their dependence on global markets where rates have clearly moved higher since the Trump election. And Australian banks get about 30 per cent of their funding from overseas markets.

For loan hunters looking for the last exceptionally low rates left in the market — such as those mortgages which are priced below 4 per cent — historically cheap deals can still be found among the smaller banks who have tried to stand out from the pack with rates that are now well below market averages.