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.

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

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): Credit Union Australia, 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.

Latest Articles

author-avatar
Harrison joined Savings in 2020. He is an experienced journalist, with previous stints at News Corp and financial comparison site Canstar. With a keen interest in personal finance, Harrison is passionate about helping consumers make more informed financial decisions.

Get free insights & tips monthly

By subscribing you agree to the Savings Privacy Policy

Loading data please wait...

{{returnData.productName}}

Overview

Current Rate

{{returnData.currentRate | percentage:2}}

Comparison Rate*

{{returnData.comparisonRate | percentage:2}}

Rate Type

{{returnData.rateType}}

Advertised Rate

{{returnData.advertisedInterestRate}}

Comparison Rate*

{{returnData.comparisonRate}}

Monthly Repayment

{{returnData.monthlyRepayment}}

Interest Type

{{returnData.interestType}}

Total Interest Rate

{{returnData.totalInterestRate | percentage:2}}

Base Interest Rate

{{returnData.baseInterestRate | percentage:2}}

Bonus Interest Rate

{{returnData.bonusInterestRate | percentage:2}}

Total Interest Rate

{{returnData.totalInterestRate | percentage:2}}

Introductory Rate

{{returnData.introductoryRate | percentage:2}}

Introductory Term

{{returnData.introductoryTerm}}

Base Interest Rate

{{returnData.baseInterestRate | percentage:2}}

Term

{{returnData.term}}

Advertised Interest Rate

{{returnData.advertisedInterestRate | percentage:2}}

Interest Frequency

{{returnData.interestFrequency}}


Fees and Features

Ongoing Annualised Fee

{{returnData.annualFee}}

Upfront Fee

{{returnData.upfrontFee}}

Offset Account

Redraw

Principal & Interest

Interest Only

N/A{{returnData.interestOnly}}

Max loan to value ratio (LVR)

{{returnData.maxLVR | percentage:0}}

Lump sum repayments

N/A

Additional repayments

Maximum Loan Term

{{returnData.maximumLoanTerm}}

Upfront Fee

${{returnData.upfrontFee}}

Ongoing Monthly Fee

{{returnData.ongoingFees}}

Early Repayment Fee Applies

N/A

Vehicle Types

{{returnData.vehicleType}}

Maximum Vehicle Age

{{returnData.maximumVehicleAge}}

Pre Approval Available

N/A

Online Application

N/A

Account Keeping Fee

{{returnData.accountKeepingFee}}

Minimum Monthly Deposit

{{returnData.minMonthlyDeposit}}

Linked Account Required

N/A

Interest Calculated

{{returnData.interestCalculated}}

Interest Paid

{{returnData.interestPaid}}

Online Application

N/A

ATM

N/A

EFTPOS

N/A

Account Keeping Fee

{{returnData.accountKeepingFee}}

Minimum Monthly Deposit

{{returnData.minMonthlyDeposit}}

Linked Account Required

N/A

Interest Calculated

{{returnData.interestCalculated}}

Interest Paid

{{returnData.interestPaid}}

Online Application

N/A

ATM

N/A

EFTPOS

N/A

Minimum Deposit

{{returnData.minDeposit | currency : '$' : 0}}

Upfront Fees

{{returnData.upfrontFee | currency : '$' : 0}}

Annual Fees

{{returnData.annualFee | currency : '$' : 0}}

Notice Period to Withdraw

{{returnData.noticePeriodToWithdraw}}

Online Application

N/A

Automatic Rollover

N/A

Maturity Alert

N/A