Significant Increase in Fixed Rates by Commonwealth Bank: A Heavy Blow to Homebuyers
In a surprising move, the Commonwealth Bank of Australia (CBA), the nation’s largest bank, has drastically increased its fixed mortgage rates, affecting countless homebuyers and existing mortgage holders. This change has been characterized as equivalent to a triple rate hike from the Reserve Bank, leading to substantial additional costs for borrowers.
The Rate Hike Explained
The CBA’s recent announcement revealed an increase of up to 0.70 percentage points on its fixed rates. Specifically, the three-year fixed rate has surged from 5.34% to 6.04%, a significant jump that poses serious implications for prospective buyers. This kind of increase is typically seen as a result of three consecutive rate hikes by the Reserve Bank, substantially increasing mortgage obligations for many borrowers.
For those who were already on fixed rates, this increase means they dodged a significant financial bullet. The one-year fixed rate climbed by 0.45 percentage points to 5.94%, nearly double the usual adjustment made by the Reserve Bank, while the two-year fixed rate now starts at 5.79%. Other longer-term fixed rates have also experienced increases, with the four-year and five-year terms raised by 0.30 points to 6.09% and 6.24%, respectively.
Market Response and Other Banks’ Actions
Following CBA’s announcement, Macquarie Bank also jumped on the bandwagon, increasing its fixed mortgage rates for the second time in six weeks, rising by another 0.25 percentage points across all fixed terms. This wave of increases reflects a broader trend, where 34 lenders have adjusted at least one fixed rate in the last month.
The rise in rates puts pressure on potential buyers as they face increasing costs. According to Canstar, a typical mortgage of $600,000 could see repayment increase by $90 per month with a single 0.25 percentage point interest rate hike. For larger loans, such as a $750,000 mortgage, this could mean an additional $112 in repayments, and for $1 million mortgages, a jump of $150 each month.
The Implications of Rising Fixed Rates
Sally Tindall, a director at Canstar, elaborated on the consequences of these hikes, indicating that borrowers who delayed fixing their loans are now facing higher payments. She noted how CBA’s lowest fixed rates are now higher than those offered by its major competitors across all terms, a stark contrast to just a year ago when they offered a two-year special rate of 4.99%.
Her insights suggest that while many borrowers are still in variable rate agreements, those considering fixed rates may feel as if they have missed a pivotal opportunity. The current trend indicates that fixed rates are continuing to rise, causing hesitation among prospective homebuyers and current homeowners alike.
Current Market Landscape
Despite the reality of rising fixed rates, Tindall also pointed out that a few lenders continue to offer rates under 5%. Institutions like Pacific Mortgage Group and Geelong Bank provide one-year fixed rates starting at around 4.99%, while some credit unions still offer two-year terms starting at 4.94%. However, she highlighted the volatility of these offerings and the possibility that fewer lenders would be able to provide such rates as the upcoming Reserve Bank meeting approaches on February 3.
In the context of the four major banks, NAB currently holds position as the leader in terms of the cheapest fixed rates available, marketing its one-year and two-year fixed rates at 5.39%. This is a significant 0.55 percentage points cheaper than CBA’s current one-year rate, making NAB a more attractive option for those looking to secure fixed-rate mortgages.
Upcoming Decisions and Future Outlook
As the economic landscape continues to shift, all eyes will be on the Reserve Bank of Australia’s upcoming interest rate decision. The financial community is bracing for an announcement that may further influence mortgage rates and lending practices in Australia. As it stands, the growing trend of increasing fixed rates from major banks is leaving many borrowers in a precarious position, grappling with higher monthly repayments and the uncertainty surrounding future financial stability.
In summary, the recent actions of CBA serve as a crucial indicator of changing market conditions and may significantly impact the decisions of both potential homebuyers and current mortgage holders. The steep rise in fixed rates may compel borrowers to reassess their financial strategies in light of the evolving economic landscape.
