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

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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

Variable
More details
UNLIMITED REDRAWSSPECIAL OFFER
  • 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%
UNLIMITED REDRAWSSPECIAL 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%
Variable
More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • 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
Variable
More details
NSW/VIC/SA METRO & INNER REGIONAL AREAS
NSW/VIC/SA METRO & INNER REGIONAL AREAS

Variable Home Loan (Principal and Interest)

  • $5000 Cashback. T&Cs Apply.
Variable
More details
REFINANCE ONLY
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
REFINANCE ONLY

Variable Rate Home Loan – Refinance Only

  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
Variable
More details
NO ONGOING FEESFREE REDRAW FACILITY
  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.
NO ONGOING FEESFREE REDRAW FACILITY

Live-in Variable Loan (Principal and Interest) (LVR < 90%)

  • Rate Match Guarantee. Tic:Toc will match the rate on identical variable P&I home loans. T&C's Apply.

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%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *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. Rates correct as of June 26, 2022. 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

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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 strives to deliver and edit news and guides that are engaging, thought-provoking, and simple to read.

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