An expert weighs in

If you secured home financing in the year-or-so before the coronavirus pandemic hit, chances are you opted for a variable rate. Back then, the economy seemed shaky, and choosing a fixed rate didn’t make much sense.

As economic conditions deteriorated during 2020, those variable-rate products really began to pay off. The Reserve Bank slashed the cash interest rate to an all-time low, and lenders followed suit.

But times have changed. Although the pandemic is far from over, the Australian economy is now performing better than most experts were predicting.

The Reserve Bank has so far kept rates at rock bottom and does not forecast it will raise them until 2024. However, many analysts are predicting a hike as soon as 2022.

Lenders seem to agree with that analysis and have already begun to raise their fixed rates. Both Westpac and NAB raised theirs in June. A July analysis by RateCity found that 19 lenders had recently increased at least one three-year fixed rate.

RBA’s next move

So, how will the situation evolve in the coming weeks and months? Could the RBA surprise us with an earlier-than-forecast rate hike, prompting lenders to follow suit?

“The cash rate target will rise when inflation is sitting sustainably between 2-3% per annum and wages growth is persistently above 3% per annum,” notes Eliza Owen, CoreLogic’s Head of Research.

“Unfortunately, the certainty ends there. The problem is that COVID-19 has clouded forecasting.”

However, she adds: “Without widespread vaccination in Australia, economic recovery is subject to the interruptions of lockdowns, which will slow the time it takes to reach the inflation and wages growth targets that would trigger a cash rate rise.”

In other words, the speed of the vaccine rollout in the weeks ahead could help us predict if and when rates are likely to move. If vaccine rates pick up, interest rates might, too.

History lessons

Another way to gauge how lender rates might move in the near future is to look at the recent past. Although many lenders’ fixed rates are currently a touch higher than they were at the beginning of the year, they remain near all-time lows.

“For example, RBA data suggests the current average new mortgage rate for owner occupiers as of May 2021 was 2.4%,” says Owen. “If you increased this by 100 basis points tomorrow, this typical mortgage rate would be at levels seen in September 2019.”

Back in September 2019, these rates were considered so low that they helped fuel a recovery trend in the housing market that continued until the pandemic struck. The continued deterioration of rates in 2020 was unprecedented.

So, lender rates remain amongst the lowest they’ve ever been. That makes the chances of lenders lowering them again seem slim.

The only way is up

Of course, if the RBA defied expectations and lowered the cash interest rate again, lenders might follow. But analysts unanimously agree that’s not going to happen.

It’s also worth remembering that lenders use a range of data, not just the RBA cash rate, to determine the strength of the economy. For example, the RBA is currently winding back stimulus measures such as bond buying, which suggests underlying strength.

In conclusion, says Owen: “It seems pretty unlikely mortgage rates would keep falling, given we have seen some tapering of expansive monetary policy, including a reduction in bond purchases. From that perspective, it might make sense for some people to fix now.”

However, she stresses that this depends on individual circumstances. “Fixed rate home loans may have different characteristics to variable rate loans which will suit borrowers differently.”

That’s why scheduling a conversation with a medical finance specialist is important. Kooyong Group has clear visibility of the home loan space and can help you identify the most attractive fixed-rate offers from its panel of lenders.

“There’s a significant number of lenders out there, and their offers change frequently,” says Kooyong Group CEO James Ostroburski.

“But we do the legwork for our clients and present them with offers that suit them best. For those who are keen to fix their rate soon, we can help them lock in a low rate with up to 95% LVR with no LMI.

Right now, Kooyong Group are offering a low fixed interest rate  + up to $4000 cash back for refinancers*  – click the button below for more details.

Being a surgeon, I'm extremely time-poor. Kooyong made the complex task of re-financing my house very easy and smooth. Not having to devote a lot of intellectual energy to the process was hugely valuable.
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Oesophago-Gastric and Bariatric Surgeon

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Switching to a better loan

1. Offer commences 17 August 2021 and may be varied or withdrawn at any time.

2. 2.34 % p.a. 2-year fixed interest rate is available for owner-occupier applicants and is subject to change by the lender prior to loan settlement without notice.

3. To be eligible for the bonus cashback, customers need to be refinancing an existing home loan of $250,000 or moreto a different financial institution. Cashback payments will be paid as follows:
• $2,000 for loans between $250,000 – $499,999;
• $3,000 for loans between $500,000 – $999,999;
• $4,000 for loans settled over $1,000,000.

Cashback is only available for owner-occupier applicants (excluding refinances of First Home Loan Deposit Scheme loans, non-residents, businesses, trusts and other non-natural persons) whose applications are received, approved and drawn-down between 12 August 2021 and 31 December 2021.

4. Only 1 cashback payment will be paid per property. This offer is only available once per applicant within the offer period. Joint applications are only eligible to receive a single cashback payment. If any of the borrowers/applicants have or will receive a cashback payment resulting from this offer, no further cashback payment will be payable where that individual is a borrower/applicant.

5. This offer is available for approved applicants only whose applications are received from 17th August, 2021 and does not apply to refinances of existing home loans which were brokered by Kooyong Group. Approval is at the complete discretion of the lender.

6. Offer current as at 27 October 2021.

1 Comparison rates are based on a secured loan of $150,000 over a term of 25 years.
WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.