Lenders Are Raising Interest Rates on Mortgages
Lenders are raising interest on homeowners’ mortgages from between 0.05% and 0.1% for principal and interest 3- and 4-year fixed loans and interest-only 3 and 5-year fixed loans. While not all banks have applied this, a majority of them have, and it won’t be too long until all banks follow.
While the RBA does not indicate it has any intention of raising the cash rate any time before 2024 the banks are. The reason, well without claiming to understand the workings of the economy and markets, essentially banks costs are increasing, and this will be passed onto the consumer.
According to the ABC, “the Australian dollar could move depending on the price of iron ore, Australian interest rates relative to those overseas, levels of economic growth at home and abroad, and rises and falls in the US dollar.” They further suggest that a weakening Aussie dollar by 10% from its current level of 76c to the USD would put pressure on interest rates due to the impact it would have on inflation or the cost of goods.
Buyers need to understand the risk, so they don’t underestimate mortgage repayments in the future.
For example, a three-year fixed rate with principal and interest repayments (P&I) has increased by 0.05% taking it to 2.19%. While a three-year fixed mortgage has raised 0.1% to 3.49%.
The Sunshine Coasts median house price is said to currently sit at $630,000 so the average loan repayments on a principal plus interest loan of 2.2% mortgage repayments would be $2,272 (95%) to $1,913 (80%). An additional half a percentage point rise in interest on the above example would mean an extra $200 (approx.) in repayment which may not seem like a lot, but you’d expect if banks costs are rising due to inflation everyday cost of goods would also rise to leave us with less disposable income. We’ve already seen the costs of materials in the building increase significantly putting upward pressure on the cost of a new home.
While we are on the topic of lending, investor lending is up and almost on par with owner-occupier loans, accounting for 55.6% and 54.3% respectively. According to research provided by CoreLogic, investor lending jumped in the March quarter by 28.7% whereas owner-occupier lending grew at a slower rate of just 12.4%. Although owner-occupier lending remains high based on historic demand, which sits around 65% of total lending, there seems to be a shift taking place in homeowner and investor lending as market prices continue to grow.
