Home loan interest rates fall as banks predict RBA cuts
Fixed-rate mortgages were booming a few years ago but lost their lustre amid Reserve Bank rate rises. Is a change looming?
Home loan fixed rates are falling as banks bet on more Reserve Bank of Australia interest rate cuts starting on Tuesday.
A growing group of lenders is offering fixed mortgage rates below 5 per cent, lower than most variable rates, but Australians continue to shy away from locking in their loans.
Banks and other sources show that fewer than 5 per cent of Australian mortgages are now fixed – down from a peak of 46 per cent during ultra-low RBA rates in mid-2021.
Borrowers are unlikely to switch back to fixed while RBA rate cuts remain on the cards, and on Friday Bank of Queensland announced the lowest fixed rate on the general market – a 4.89 per cent loan over two years.
Analysis by research group Canstar shows 18 lenders now offer fixed rates below 5 per cent but just one – Police Credit Union – offers a variable rate at that level. It found the lowest fixed rate is only 0.1 percentage points below the lowest variable rate.
However, opting for a fixed rate today means potentially missing out on future RBA cash rate cuts from its current level of 3.85 per cent.
Canstar director of data insights Sally Tindall said she did not expect fixed rates to become popular right now.
“The mindset of borrowers is to be pocketing the variable rate cuts … we’ve been talking about cash rate cuts for a year and we’ve only seen two so far,” she said.
“I think a lot of borrowers are still waiting eagerly for the cash rate cuts before they turn their mind to fixed, because variable rates aren’t sitting that much higher than fixed at this point in time.
“Fixed rates haven’t fallen far enough to make them attractive to variable-rate customers.”
Ms Tindall said while a RBA cash rate cut on Tuesday was not certain, after the RBA surprised borrowers and economists by holding it steady last month, it was highly likely, “particularly because the RBA said their next move will be down and that they were waiting for inflation results that they now have”.
“It’s a green-light path to a cash rate cut on Tuesday, but we will have to wait for that to happen.”
Ms Tindall said the big four banks, whose own fixed rates were much higher than the best rates on the market, were predicting between two and four more RBA rate cuts.
A survey of 34 economists and analysts by comparison website Finder.com.au shows 91 per cent expect a RBA cash rate cut next week.
Finder head of consumer research Graham Cooke said a standard 0.25 percentage point cash rate cut would save someone with a typical $500,000 mortgage $2884 per year.
“With inflation well within the target range, there is no reason to hold,” he said.
“Banks will be under intense scrutiny to pass on a cut in full. If your rate’s sitting above 5.5 per cent after this change, you’re probably paying more than you need to.”
Two Red Shoes mortgage broker Rebecca Jarrett-Dalton said Australians were expecting rate cuts, which meant locking in now only suited a small group of people, “typically really budget-conscious borrowers wanting the comfort of knowing their repayments”.
Ms Jarrett-Dalton said knowing when to fix was “a crystal ball question”.
“If it’s a short-term fixed rate and one or two typical rate cuts under the variable on offer, then we can rationalise if it’s worth considering with all the economists predicting at least two rate cuts,” she said.
“Most borrowers are currently still holding off.”
Canstar’s Ms Tindall said competition among lenders was increasing with headline-grabbing rates.
“Bank of Queensland’s cut today might be small but it’s a power move that puts it on the top of the lowest-rate tables,” she said, adding that a bidding war was under way to push fixed rates south.
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