In 2020, against the backdrop of the pandemic, the RBA adopted several policies, including cuts in cash rates, to support Australia’s economy and counter the disruptions triggered by COVID-19. It was predicted to continue at the same level until 2024.
Home loans most likely comprise the most significant chunk of expenses for home buyers. Any rise in interest rates sets off a chain of reactions, impacting the housing market.
The possibilities of rising home loan rates are bound to raise doubts, especially if you’re scouting for a home loan that takes you a step closer to inking a deal on the perfect home. Rising interest rates make new home loans more costly for potential buyers and refinancers and the current ones steeper for those paying a mortgage.
So, coming at a time following RBA Governor Philip Lowe’s announcement that cash rate hike could happen as early as mid-2022, is it time to write off cheap home loans as a thing of the past?
Probably not! Let’s find out why.
While the RBA continues to maintain the official rates at the present low level of 0.10%, it has not increased since November 2010, when it touched 4.75 percent.
There is widespread speculation that a rate hike is on the cards in the near future, and with it, the home rates too. These sentiments were triggered following Governor Philip Lowe’s recent statements after the April policy meeting that evidence about inflation and the evolution of labour costs in the coming months would be assessed and policies set accordingly.
According to AMP Capital's Chief Economist Shane Oliver, the conditions for a rate hike will most likely be in place by June. Many banks and lenders have already started to brace themselves and realign their fixed home loan rates higher.
The good news is that you need not abandon plans to buy that perfect home. Check out our list for home loans with a rate of below 2%, and you’ll know why.
But, before that, get a quick run-through of recent updates on the interest rates scenario in Australia.
Understanding Australian Home Loan Interest Rates in 2022
This year, most Australian lenders have mainly maintained or reduced variable rates to gain market share. This trend has NOT been exclusively limited to the top four Australian banks, with fierce competition driving as many as 35 financial lenders to offer variable rates below 2%.
Interestingly, the fixed-rate trends have been quite the opposite, displaying a wild run over the last 18 months. From levels as low as 1.89 percent at the end of 2020, the rates at the top 4 banks have surged wildly, hovering on or above 4 percent.
In fact, at the time of writing this article, Westpac has announced a hike in fixed rates for owner-occupiers and investors by up to 0.30 percentage points, its ninth hike in the last six months.
Five months ago, Westpac was still offering fixed rates starting with a ‘1’. Now its lowest fixed rates begin with a ‘3’. The hike has primarily been attributed to rising fundings costs.
And while 1-year fixed rates under 3 percent are still being offered by banks like CBA, ANZ and NAB, current indications are that this situation is not like to last long.
According to the ABS, the total variable-rate housing loans lent to residents (including refinancing) rose 12.2 percent to $33.5 billion.
On the contrary, fixed-rate housing loans funding fell to $13.1 billion, down 17.0 percent.
Corresponding with the increase in fixed interest rates, the ratio of fixed-rate loans to all loans funded in the month dived from a high of 46 percent in July 2021 to 28 percent in February 2022.
The trends indicate that lenders expect interest rates to scale upwards in the next few months. The reduction in variable rate loans may be a move to attract home buyers to opt for variable rate loans ahead of the increase.
Similarly, if you prefer the fixed-rate option, the rise in fixed rates may be a not-so-subtle hint that now is the right time to secure a reasonable fixed rate before they increase further. This way, you safeguard your interests and ensure immunity against interest rates for between one and five years, based on the duration of your fixed-rate loan term.
Will We See Home Loan Rates at 1%?
Fortunately, a sizable number of lenders do offer home loans below 2%. However, certain key factors need to be considered.
A significant chunk of home loans that start at ‘1’ are variable rate loans for owner-occupiers. Of the suite of existing players in the market, about 19 of them have a comparison rate below 2 percent.
On the other hand, the lone fixed rate loan under 2 percent has been devised to have a one-year fixed term. This means that at the end of the initial one-year period, the home buyer will either migrate to the variable rate or opt for refinancing to another fixed rate loan at a higher rate.
There are also comparatively fewer loans under 2 percent for home investors. While only two variable rate investment loans exist from the same lender, for a one-year term, there doesn’t seem to be any fixed rate investor home loans with an interest rate below 2%.
To summarise, the findings suggest that home buyers will have to select a variable rate loan if they seek an interest rate with a ‘1’ in front. It would be noteworthy to keep in mind that variable interest rates fluctuate, exposing you to the risk of the steep interest rate rise that has been predicted.
Current Providers Offering Home Loans Under 2%
Based on Joust's market research, the table below contains Australian providers that are currently offering home loans under 2% in April. Products are sorted alphabetically and by interest rate.
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