Westpac Bank seems to have given the market a scare by raising interest rates this week.
The bank said all variable mortgage rates will rise by 0.14% from September 19.
The increase will apply to new and existing customers, and affects both owner-occupiers and investors.
It is the first of the big four banks to raise interest rates for all its variable home loans this year, although a number of smaller banks had already moved to offset higher costs.
So what are borrowers doing?
According to new research by finder.com.au borrowers are flocking to fixed interest rates.
Almost two in five (38%) Australian mortgage holders are choosing to fix their home loan in the next 12 months.
Bessie Hassan, Money Expert at finder.com.au, said fixing rates was one way borrowers could mitigate risk in an uncertain mortgage market.
“Borrowers have been spooked by recent out-of-cycle interest rate rises, with Westpac the first of the big four to do so.
“Now the question on everyone’s lips is – when will the others follow? My guess is sooner rather than later – expect other announcements in the coming days.
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“As the threat of other lenders increasing their rates grows we expect to see more borrowers opting to lock in a fixed interest rate,” she said.
Hassan said a new benchmark had been set.
“Borrowers want a three in front of their home loan rate – and that’s the case for variable and fixed rates alike,” she said.Source: finder.com.au
Look how many borrowers there are:
The latest Australian Bureau of Statistics (ABS) Census shows there are 2.86 million properties owned with a mortgage in Australia, meaning a potential one million borrowers are looking to fix their interest rate in the next year.
The other 62% plan to keep their current home loans, preferring to take a wait and see approach.
“While economists and experts are uncertain when the next cash rate change may occur, the majority are united in their forecast that the next move will be up – likely to occur in 2019.”
The fixed rate boom was being driven by those from New South Wales and Queensland where 45% of borrowers are opting for fixed rate home loans in the coming 12 months.
South Australians and Tasmania's are bucking the trend – where only 28% of mortgage holders are considering fixing.
- The average home loan is $396,600, and a 14 basis point increase means repayments will increase from $2,188 per month to $2,222 – equivalent to around an extra $34 a month or $408 per year.
- In spite of the rise, good home loan deals are still around as big four banks have special offers with much lower rates.
- Alternatively, there are many small online providers to choose a home loan from, with a handful of rates under 3.60%.