{"id":133755,"date":"2023-07-30T03:59:06","date_gmt":"2023-07-30T03:59:06","guid":{"rendered":"https:\/\/fin2me.com\/?p=133755"},"modified":"2023-07-30T03:59:06","modified_gmt":"2023-07-30T03:59:06","slug":"big-four-banks-hike-fixed-rates-as-funding-costs-rise","status":"publish","type":"post","link":"https:\/\/fin2me.com\/markets\/big-four-banks-hike-fixed-rates-as-funding-costs-rise\/","title":{"rendered":"Big four banks hike fixed rates as funding costs rise"},"content":{"rendered":"
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Before a key Reserve Bank meeting this week, Australia\u2019s biggest banks have been pushing up their fixed rates and walking away from the ultra-competitive approach they took to attract customers to this type of mortgage during the pandemic.<\/p>\n
NAB increased its fixed rates for owner-occupiers and investors on Friday for the second time in a week \u2013 meaning some rates rose by up to 0.5 percentage points within the space of eight days \u2013 in a sign the big banks are seeking to offset rising funding costs.<\/p>\n
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All four big banks have raised their fixed rates in the past few weeks amid an increase in funding costs.<\/span>Credit: <\/span>Ryan Stuart<\/cite><\/p>\n It follows similar hikes by CBA, Westpac and ANZ earlier this month, leaving no fixed rates among the big four banks below 6 per cent. The changes only affect rates on new fixed-rate loans, not the rates paid by existing customers.<\/p>\n RateCity research director Sally Tindall said banks were no longer interested in offering the lowest fixed rates on the market because of factors including an increase in their funding costs.<\/p>\n \u201cThere\u2019s been a significant rise in the cost of funding in the last 12 months which has flowed through to both fixed and variable rates,\u201d she said. \u201cRising cash rates have made the cost of funding expensive all over the world.\u201d<\/p>\n Fixed-rate mortgages have historically played only a small role in Australia, but the extraordinary fiscal stimulus of the COVID-19 pandemic changed all that. Banks slashed fixed-interest mortgage rates to less than 2 per cent in many cases, and customers leapt at the opportunity to borrow so cheaply, causing fixed-rate lending levels to surge.<\/p>\n \u201cBanks were fighting tooth and nail for customers during COVID but refinancing has become costly for banks, so they want the churn to stop,\u201d Tindall said. \u201cWhen it comes to banks lifting their fixed rates, it\u2019s more a matter of why not.\u201d<\/p>\n Competition for fixed-rate customers has eased. While in July 2021, a record Australian high \u2013 46 per cent \u2013 of new and refinancing customers were on fixed rates, Tindall said that figure had now \u201cfallen off a cliff\u201d to about 5 per cent.<\/p>\n \u201cThe consequences of having uncompetitive fixed rates aren\u2019t huge because there\u2019s not much competition in the sector right now,\u201d Tindall said.<\/p>\n \u201cBanks don\u2019t want to be left out of the pocket when there\u2019s rising pressure on fixed-rate funding. They want a buffer when they can, without broad consequences in securing business.\u201d<\/p>\n Banking analysts also believe competition in mortgages has eased lately \u2013 UBS this month said its data showed competition between the big four had become more \u201crational.\u201d<\/p>\n Fixed rates also move in line with the money market\u2019s expectations of where official rates are heading \u2013 reflected in bond pricing. That, in turn, depends on the outlook for inflation and the economy.<\/p>\n Canstar group executive Steve Mickenbecker said the case for falling interest rates \u2013 and therefore falling fixed rates \u2013 was fairly weak.<\/p>\n \u201cI can\u2019t see a fall in long-term rates any time soon because the expectation is that there\u2019ll be a pretty soft landing which means there won\u2019t be a strong case for early easing of interest rates,\u201d he said.<\/p>\n While the Reserve Bank\u2019s unconventional bond-buying policies held down bond yields during the pandemic, which flowed through to ultra-cheap fixed-rate loans, Mickenbecker said interest rates and fixed rates offered during that period were extraordinary.<\/p>\n \u201cInterest rates have been more normal recently than those we\u2019ve seen in the last few years,\u201d he said. \u201cTo suspect they\u2019re so far out now that they must fall is not really realistic.\u201d<\/p>\n Money market traders last week pared back their bets on an RBA rate rise this Tuesday after figures showed inflation was slowing faster than expected and retail sales fell. NAB economists on Friday said markets were only pricing a 24 per cent chance of a hike in the cash this week.<\/p>\n However, economists say it will be a close call for the RBA board.<\/p>\n The country\u2019s largest bank, CBA, is expecting a final cash rate hike in August to 4.35 per cent while NAB sees the cash rate peaking at 4.6 per cent and staying there until March 2024.<\/p>\n The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion.<\/i><\/b> Sign up to get it every weekday morning<\/i><\/b>.<\/i><\/b><\/p>\nMost Viewed in Business<\/h2>\n
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