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As lenders announce fixed-rate cuts en masse, brokers have weighed in on what this means for the market.
Macquarie Bank, ING, and Bankwest have recently reduced their fixed home loan rates, with some falling below 6 per cent.
As recently as yesterday (12 September), Bendigo and Adelaide Bank has also announced interest rate changes, lowering its one- and two-year fixed-rate home loans for owner-occupier customers paying principal and interest by 0.45 per cent as of 20 September.
Dennis Teale, acting chief customer officer, consumer banking, at Bendigo and Adelaide Bank, said that the lender “continues to carefully consider the impact of interest rates” on its home loan customers.
“As Australia’s most trusted bank we understand the impact higher interest rates can have on households and have a team standing by to help our customers with any concerns,” Teale said.
However, fixed-rate borrowing remains low despite these cuts, with Australian Bureau of Statistics (ABS) data revealing that only 1.9 per cent of new loans opted for fixed rates in July.
Home Loan Experts CEO Alan Hemmings and senior mortgage broker Jonathan Preston have offered insights into the implications of these changes for the housing market and the future of both fixed and variable rates.
Preston provided a comprehensive outlook, saying that while global disinflation is occurring, inflation in Australia remains elevated. He predicted that Australian inflation will eventually align with global trends, which could impact interest rates.
“I think property is going into a dark period, with prices and possibly rents falling,” Preston said.
“This could lead to a drop in CPI, ultimately prompting rate cuts.”
Preston forecast that fixed rates could potentially fall as low as 4 per cent, though he believes that variable rates may take longer to decrease.
He said that significant reductions in variable rates might only occur during major economic downturns, such as a global financial crisis or high unemployment.
“Variable rate cuts will require a crisis – a GFC-style event, a global crash, or something of that magnitude,” Preston said.
He also said that while fixed rates may decrease, a rapid rebound in property prices following rate cuts is unlikely in the near term.
Hemmings supported Preston’s forecast, but said that falling fixed rates indicate the market’s expectations for future cash rate cuts.
“Fixed rates usually indicate where the market expects the cash rate and variable rates to go, though they don’t always predict the timing accurately,” Hemmings said.
He expects fixed rates to remain below 5 per cent, but does not anticipate they will fall below 4 per cent.
Hemmings said that recent fixed-rate reductions may not necessarily lead to decreases in variable rates this year.
“Most lenders are adjusting their medium-term fixed rates – two- and three-year terms – which suggests they are locking in clients at higher rates before the market eventually adjusts,” he said.
For home buyers and home owners, both Preston and Hemmings emphasised the importance of viewing fixed rates as a means of securing repayment certainty rather than chasing the lowest rate available.
Hemmings said that the difference between the best fixed and variable rates is approximately 0.6 percentage points, which is less than three cash rate cuts.
“Borrowers need to consider whether they expect more than 0.6 percentage points in rate cuts over the next few years,” Hemmings said.
“We’re unlikely to see a return to a cycle where fixed rates are substantially cheaper than variable rates. Customers should understand this and avoid locking in a fixed rate when there’s a potential for future rate reductions.”
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