Australia’s largest bank surprises lending market with massive fixed rate hikes
Australia’s biggest bank suddenly raised its fixed interest rates for homeowners and investors by 1.4% on June 30, a move that surprised the lending market.
According analysis by financial comparison website RateCity, the Commonwealth Bank of Australia (CBA) raised its one-year fixed rates for homeowners to 4.99%, up 2.90% from the year former.
Similarly, the bank’s five-year fixed rates climbed to 6.69%, an increase of 3.7% from the previous 12 months.
The ABC also slashed its lowest variable home loan rates by 0.15%, to 2.79% and 2.89% for homebuyers with a 30% down payment and a 20-29 down payment, 99%, respectively.
RateCity research director Sally Tindall said the CBA’s fixed rate hikes were a typical move.
“The bank is reacting to the rising cost of fixed rate funding and a market that refuses to believe that the Reserve Bank of Australia will stop raising the cash rate to around 2.50%,” she says.
Tindall also noted that the bank was offering lower fixed rates two percent lower than a year ago. However, the latest changes have pushed the CBA’s lowest fixed rate to less than five percent and most other rates to more than six percent.
“It’s amazing to see fixed rates move so dramatically in such a short time,” she said.
“Fixed rates below 2% of 12 months ago now seem like a distant dream.”
Fixed rate loans represent a small percentage of the market
As for the CBA’s fixed rate hikes, Center for Independent Studies chief economist Peter Tulip told The Epoch Times that the development isn’t “a big deal.”
“We went through a period where fixed rate loans were exceptionally popular, peaking at 46% of home loans in August 2021,” he said, citing data from the Australian Bureau of Statistics.
“We are now returning to a more normal situation where fixed rate loans are only a small part of the total.”
Additionally, Tulip said financial markets currently expect both variable and fixed interest rates to rise rapidly. Therefore, other banks would soon follow the CBA and raise their interest rates as well.
“In terms of implications, large increases in mortgage rates will lead to falling house prices and a marked slowdown in construction,” he said.
The CBA fixed interest rate changes come as economists expected the Reserve Bank of Australia to raise the cash rate by 0.5% to 1.35% at the next board meeting. administration on July 5.