Are the glory days over? Why mortgage rates could rise again

The Reserve Bank’s “term financing facility” ends in June, no longer providing cheap financing to banks. But what does this mean for mortgage interest rates?

There is much more influence over a bank’s funding costs and interest rates than just the Reserve Bank’s cash rate.

That rate has remained stable at 0.10% since November 2020, and the message from RBA Governor Dr Philip Lowe is that it will remain so until 2024.

One event over the past year has been the RBA’s Term Finance Facility (TFF), created to provide roughly $ 200 billion in cheap financing to banks to keep the debt economy going.

Initially, the interest rate was 0.25% to be repaid over three years, but was later lowered to only 0.10%.

Banks have until the end of June to withdraw the nearly $ 90 billion remaining in TFF before this party ends.

So, after the host turns on the lights and mutes the music, what happens to the mortgage interest rates?


Buying a house or looking to refinance? The table below presents home loans with some of the lowest interest rates on the market for homeowners.

Basic criteria: a loan amount of $ 400,000, variable, fixed, principal and interest (P&I) mortgage loans with an LVR (loan to value) ratio of at least 80%. If the listed products have an LVR

TFF and mortgage rates in figures

Savings.com.au considered the end of home loan rates to be ‘historically low’ in February, and since then a number of banks have indeed raised interest rates including CommBank, NAB, Westpac, Citi and UBank, to name a few. .

Firstmac non-bank lender CFO James Austin told Savings.com.au that mortgage “incentives” will disappear and rates will rise again when the TFF ends.

“The new mortgage rates will start to rise. In fact, we’re already seeing that to some extent,” he said.

“The banks’ cheap fixed rate offers will be phased out over the next few months, and the current cash incentives paid by banks will disappear.”

Banks that have or have had redemption offers include Bankwest, BOQ, CommBank, NAB, Westpac, RAMS and St George.

For example, St George has offered up to $ 5,000 in cash back on a multitude of home loans until March 31st.

Do banks “need” the TFF?

The end of TFF means banks will have to revert to old styles of borrowing: bonds and residential mortgage-backed securities (RMBS), which are generally more expensive modes of financing than TFF.

Mr Austin said the FFT was ultimately “not fair”.

“He offered finance to banks at 10 basis points (0.10%),” he said.

“Non-banks have had an induced advantage in that the absence of banks in external funding markets (bonds, RMBS) has lowered the cost of funding for non-banks to some extent, but on average this was more like 100 basis points (1.00%) versus 10 basis points. “

The Reserve Bank argued that the TFF will not continue unless “there has been a marked deterioration in financing and credit conditions”, and for now, economic conditions look good.

Until the week ending May 24, $ 6.3 billion had been withdrawn and $ 4.5 billion the week before.

So far, banks have been slow to dip into their allocations, with the figure of $ 4.5 billion being only the third time more than $ 3 billion has been drawn in more than six months.

However, Westpac’s credit strategy team “expects this to continue to increase until the end of the program given the recent momentum in business lending.”

As of May 17, CommBank still had $ 28.7 billion out of a total allocation of $ 48 billion; $ 14.3 billion NAB versus $ 28.6 billion; ANZ $ 8 billion versus $ 20.1 billion; Westpac $ 8 billion versus $ 29.8 billion; and Macquarie had $ 5.9 billion of $ 7.6 billion.

Austin expects banks to fully pull their quotas on June 30.

“Banks wait until near the expiration date in order to maximize the duration of the funds they are withdrawing,” he said.

What to do as a borrower

At the end of the day, there’s little that borrowers can do other than stay on top of the latest mortgage news and consider refinancing their mortgage at a more competitive rate.

Many borrowers have been encouraged to fix their mortgage for three, four or five years with “historically low” rates.

In 2020, for example, CommBank’s fixed mortgage portfolio grew by 38% in the second half of the year compared to the first half.

However, breaking a fixed loan early can be difficult and costly.

AMP chief economist Dr Shane Oliver told Savings.com.au in April about some of the risks associated with fixed home loans.

“The main danger is to be lulled into a false sense of financial security on the back of the ultra-low fixed rate and not allow a possible increase in interest payments in the event of a return to a variable or even fixed rate. much higher when the initial fixed rate ends, ”he said.

“A sensible approach is to leave some variable to provide some flexibility.”

It is also important to note that variable rates can increase irregularly with increases in Reserve Bank cash rates.

Investment expert Peter Switzer has provided proven advice to borrowers keeping an eye on the mortgage market.

“Look at the interest rates which can be so low, but the comparison rates can be very high. Look at the actual monthly repayments and all the other fees that make the loan you are comparing more expensive than you think,” A Mr Switzer said in a recent column for the Switzer Daily.

“Can you trust Reserve Bank Governor Dr Phil Lowe when he says the cash rate will be 0.1% until 2024?

“If you’ve borrowed too much on a variable home loan, you better hope Dr. Phil can keep his promise on the interest rates.”


Photo by Carnaby Gilany on Unsplash

The entire market was not taken into account in the selection of the above products. Instead, a smaller part of the market has been envisioned, which includes retail products from at least the Big Four banks, the top 10 customer-owned institutions and Australia’s largest non-banks:

Products from some vendors may not be available in all states. To be considered, the product and price must be clearly published on the product supplier’s website.

For the sake of full disclosure, Savings.com.au, Performance Drive, and Loans.com.au are part of the Firstmac group. To find out how Savings.com.au handles potential conflicts of interest and how we are paid, please click on the links on the website.

*Comparison rate is based on a loan of $ 150,000 over 25 years. Please note that the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redistribution fees and cost savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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