4th September 2018 Reserve Bank of Australia leaves official rates on hold, continuing the record run of "holds".
When combined with easing of house prices in some Australian markets the thought of rising interest rates is enough to push prospective buyers out of the market, is this fear unfounded? Westpac one of Australia's big four banks decided to increase their variable rates by .14% effective 30/9/18 and some speculation that the other big three would follow. What makes bank interest rates move and where are they going in 2018?
Reserve bank increases. The Reserve bank will lift or lower official cash rates for various reasons to do with economic growth, inflation, fiscal and monetary policy, employment and trade. None of the indicators that point towards rate movements have moved even moderately in 2016 & 2017, almost no change is expected in 2018 & little in 2019 according to economists and media commentary.
Australian Prudential Regulation Authority (APRA). The government body overseeing banks has sought to limit how banks are lending money. APRA has made changes to how much lending banks can to do investors, the amount of interest only loans and the requirements of borrowers. Does this lift rates? not really, however it does make acquiring a loan a little more difficult in 2018. You will get less than 2017 and you better have your expenses in order as assessment of how you can service your loan is now very onerous.
Competition. Competition between banks and other lenders intertwined with APRA restrictions has allowed lenders to dip in and out of lending markets, marketing special rates and withdrawing them just as quickly. Does this make rates increase? Yes, however it also makes rates decrease.
What can you do about it? If the thought of rising interest rates is keeping you from purchasing a property or basically keeping you up at night - FIX YOUR RATE! Fixing your rate for 3 years or even 5 years can be done at the same rate or only up to .25% higher than current variable rates. A very nice comfort for a minor increase. You can also split your loan and have an each way bet, half fixed, half variable etc.
There are two important things you MUST keep in mind before you fix your rates. Firstly, once fixed you will pay break costs if you sell your home or want to refinance or change lenders before the fixed period ends. Break costs are not cheap! They basically compensate the bank for the lost interest. Secondly fixed rates are generally an indicator of where the variable rates are going to be and you are not likely to save any money anyway.