A survey undertaken by The Australian suggests that the big four lenders are jacking up fixed rate mortgages as they seek to mitigate the impact on their bottom line from the Australian government’s ban on exit fees for home loans, whilst at the same time profiting from the increasing number of borrowers who prefer to lock in their interest rates.
According to the analysis, fixed rates are increasing for the first time in twelve months, and the gap between standard variable rates is being bridges.
“The market has shifted its view on interest rates, pushing up the cost of funding term mortgages, and fixed-rate home loans have increased accordingly,” said Glenn Haslam, ANZ general manager of mortgages and deposits.
“There has been an uptick of customers choosing to fix.”
The lenders have blamed the interest rate rises on a shifting yield could, and the assumption that the Australian bank will hold official interest rates steady in the immediate future.
Last year fixed mortgage rates plunged in response to the expectation that the RBA would have to continue cutting interest rates as it sought to provide protection for the Australian economy from the European debt crisis.
At the end of last year, there was a 74 basis point differential between fixed rates and the standard variable rate. That differential has narrowed, with the average standard variable rate of 100 lenders now at 6.87 per cent, whilst the most popular thee year fixed rate standing at 6.35 per cent.
The analysis shows that low fixed rates on offer last year prompted 3 per cent more customers to lock in rates.
One analyst suggests that lenders find the fixed rate loans more attractive to make because of the break fees should borrowers end their mortgage with the lender.
The break fee helps offset the impact of the government decision to ban exit fees.
According to Mr. Smith, fixed rate mortgages experienced a spike in 2011, when borrowers were hit by consecutive rate hikes in the previous year.
“A lot of people jumped into fixed rates last year,” he said.
“There had been a lull because in 2007 a lot of people got burnt by fixing rates then. If you did, and the the RBA cut rates so aggressively, you were locked in to paying nearly 300 basis points above the variable rate.”
Roughly 20 per cent of all Australian mortgages are estimated to be fixed rate. Last week Citibank said that roughly 30 per cent of its mortgage portfolio were fixed rate loans.