Although there are talks of further interest rate rises on the horizon, should you be considering fixing your Home Loan rate right now? Let’s look at what happened back in 2007-2008…
Interest rates were on an upward trend, 3.5 percentage points higher than today’s rates. Home owners were frantically fixing their mortgage rates driven by anxiety over the fear of further rate rises to come. Then came the Global Financial Crisis… The Reserve Bank, in it’s efforts to avoid a recession and attempting to minimise economic shock, reduced interest rates by 4.25 percentage points in just 7 months. Interest rates were reduced to an emergency low of 3%… But those Home Owners who had locked in fixed rates were stuck paying, in some instances, 10% mortgage interest – for years! The costs involved when breaking a fixed rate contract can run in to the thousands.
Are we looking at a similar situation right now? So many Homeowners are in dire situations at the moment – but in saying that, I m not an economist. I cannot predict where the rates will go from here, but we can look at some data for clues…
Have Lenders been increasing or decreasing interest rates in the last month?
More lenders have reduced their fixed rates in the last month, rather than increasing them. Does this suggest that they believe the rates may be stabilising? It certainly looks that way…
Back in February, the RBA predicted that there were possibly a couple more rate hikes on the horizon. They predicted a cash rate of 3.85%. We are there right now.
What did the Big 4 Banks predict?
CBA correctly predicted the cash rate would hit 3.85% in May, while the other three banks held out for another rate hold. CBA now states 3.85% is the cash rate peak, while Westpac and NAB have pencilled in another potential rate hike in either July or August 2023, bringing it to a peak of 4.10%. ANZ has yet to make a firm current prediction.
| Bank | June | July | August |
| CBA | Nil | – | – |
| NAB | Nil | 4.10% | – |
| Westpac | Nil | Nil | 4.10% |
What’s more, the big 4 banks estimate the inflationary pressures on the economy will ease off in late 2023 and early 2024, potentially incentivising the RBA to relax its iron grip on the cash rate and pass along a series of cuts anyway.
CBA in particular estimates cash rate cuts will begin in the last quarter of 2023, while Westpac outlines an easing in 2024. So, for borrowers everywhere, there may be relief on the horizon.
Once again, I am no economist (economists don’t get it right all the time either, by the way). What I will say though, is think hard and do your homework before you fix your rate in this climate. Has the train left the station?
Sandra Strah
Dip FMBM, Dip FS, Adv Dip FS (FP)
Mortgage Broker
Own Home Loans
