Analysis shows variable rate change

Average variable rates changed significantly last financial year, while fixed rates barely moved, a new home loan market analysis has found.

Comparison site RateCity.com.au analysed all the mortgages on its website and found that the average borrower with a variable principal-and-interest loan ended the year paying up to 10 basis points less.

However, the average borrower with a variable interest-only mortgage ended the financial year paying up to 20bp more.

The research found that for owner-occupiers paying principal and interest, average rates fell from 4.38% to 4.28%

For owner-occupiers paying interest-only, average rates rose from 4.51% to 4.71%.

For investors paying principal and interest, average rates fell from 4.76% to 4.72%.

For investors paying interest-only, average rates rose from 4.90% to 5.02%.

RateCity.com.au property and personal finance editor Nick Bendel said the last 12 months had been a bumpy ride for interest rates, even with no official moves from the RBA.

He said, “Over the last 12 months, the regulator has asked banks to clean up their lending practices, particularly when it comes to interest-only lending. 

“As a result, we’ve seen changes across the four loan tiers, with rewards for owner-occupiers doing the right thing by paying down their debt, and a stick for people who have continued to pay interest-only.”

“What does this mean for brokers?” he asked.

“Even though lenders are less willing to do business with your interest-only clients, they are actually fighting harder for your principal-and-interest clients.

“With the market downturns in the two main capital cities, and incentives on the table for owner-occupiers, we expect first home buyers will emerge out of the shadows. The next 12 - 18 months could be their time in the sun.”

Meanwhile, fixed-rate home loans drifted slightly higher during the last financial year.

For owner-occupiers, average fixed interest rates ended the financial year at:

• 4.20 per cent for one year (down 2 basis points over FY18)
• 4.24 per cent for three years (+3 points)
• 4.66 per cent for five years (+3 points)

For investors, fixed rates ended the financial year at:

• 4.49 per cent for one year (+2 points)
• 4.52 per cent for three years (+3 points)
• 4.94 per cent for five years (+5 points) 

Bendel said, “RateCity.com.au statistics show that fixed rates bottomed out in November 2016 and they’ve been gradually inching up since, including last financial year.

“They’re likely to keep climbing, because Australian lenders have been paying more for their funding and these costs are likely to be passed on to your borrowers.

“Variable rates are also likely to increase, for the same reason. No fewer than 17 lenders have made out-of-cycle rate hikes since April, even though the Reserve Bank has given no hint that it’s planning to increase the cash rate any time soon.

“RateCity.com.au’s forecast for brokers is that both fixed and variable rates will continue to drift upwards in FY19.”

Related stories:
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Cash rate holds but borrowing capacity drops
Lender boosts home loan rates