Why are home loans rates climbing when the cash rate is still 0.10%?

author-avatar By on April 16, 2021
Why are home loans rates climbing when the cash rate is still 0.10%?

A fair number of lenders raised rates on home loans this week, including Bankwest, Newcastle Permanent, and Greater Bank. But why?

All of these banks' changes were to fixed home loans, which generally means banks have forecast that their wholesale funding costs will rise in the coming months and years.

A large part of this is influenced by the Reserve Bank's cash rate, which still sits at a historic low of just 0.10%, and the RBA Governor has maintained that this will not be raised until 2024, or until inflation and wage growth have been lifted to 'comfortable' levels.

However, a little over a week ago, Adelaide Bank changed tack and raised interest rates on some variable loans by 15 basis points, a sign that things could change sooner than anticipated.

One factor that could stoke change is the Reserve Bank's Term Funding Facility, which provides low-cost funding to banks.

It's due to roll-back after June, which could mean wholesale costs for banks rise, which then flows on to borrowers.

Another factor is that the Government 10-year bond yield is rising, which is what banks look to, to determine what's going to happen to the RBA cash rate, as it influences inflation and other metrics.

The yield sits at 1.67% now - just a year ago it was around half that.


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
LIMITED TIME OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
VariableMore details
WIN YOUR HOME LOAN INTEREST FREE

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • WIN your home loan interest free and save up to $1.1 million. Refinance by 29 October. T&Cs apply.
  • Refinance Only. Fast online application, refinance in minutes, not weeks.
  • No Nano fees, Free 100% offset sub account. Mobile app. Visa debit card & instant payments.
WIN YOUR HOME LOAN INTEREST FREE

Nano Home Loans Variable Owner Occupied, Principal and Interest (Refinance Only)

  • WIN your home loan interest free and save up to $1.1 million. Refinance by 29 October. T&Cs apply.
  • Refinance Only. Fast online application, refinance in minutes, not weeks.
  • No Nano fees, Free 100% offset sub account. Mobile app. Visa debit card & instant payments.
VariableMore details
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
YOU COULD WIN $100k TO PAY DOWN YOUR LOAN*

Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

  • For a chance to win $100K towards your home loan, apply with Athena before Oct 31 & be approved by Dec 15
  • We lower your rate based off how much you’ve paid down your loan
  • Automatic rate match
VariableMore details
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
AN EASY ONLINE APPLICATION

Yard Home Loan (Principal and Interest) (Special) (LVR < 70%)

  • Unlimited additional repayments
  • Unlimited free redraws
  • Optional 100% offset can be added for $120 p.a.^
VariableMore details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services

Rates correct as of September 25, 2021. View disclaimer.

Which lenders raised interest rates this week? 

There was a wide variety of home loan interest rate rises this week - below are some of the more prominent ones.

Northern Inland CU Rate Rises

  • Fixed Rate Investor 4 Years: Raised by 90 basis points to 2.89% p.a. (4.46% p.a. comparison rate*)
  • Fixed Rate OO 4 Years: Raised by 90 basis points to 2.89% p.a. (4.46% p.a. comparison rate*)

Bankwest Rate Rises

  • Complete Fixed 4 Years OO P&I: Raised by 30 basis points to 2.29% p.a. (3.43% p.a. comparison rate*)
  • Complete Fixed 5 Years OO P&I: Raised by 20 basis points to 2.59% p.a. (3.47% p.a. comparison rate*)

Newcastle Permanent Rate Rises

  • Investment Fixed 5 Years P&I Special Offer: Raised by 20 basis points to 2.99% p.a. (3.98% p.a. comparison rate*)
  • OO Fixed 5 Years P&I Special Offer: Raised by 20 basis points to 2.49% p.a. (3.58% p.a. comparison rate*)

These 'Special Offers' are for borrowers with a maximum loan-to-value ratio (LVR) of 80%.

Greater Bank Rate Rises

  • OO Great Rate Discount P&I Fixed 4 Years: Raised by 20 basis points to 2.29% p.a. (3.22% p.a. comparison rate*)
  • Inv Great Rate P&I Fixed 4 Years: Raised by 20 basis points to 2.79% p.a. (3.64% p.a. comparison rate*)

'Discounts' are available for borrowers with a maximum LVR of 80%.


Photo by Lindsay Henwood on Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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