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Australian home buyers are expected to flood the property market this month before banks call a halt to the era of ultra-cheap mortgage rates, driving home prices even higher.
Beginning next month, banks are expected to start hiking their three-year fixed rates, ending the era of 2% fixed-rate loans – and the Reserve Bank’s term funding facility is set to expire June 30.
A borrower paying off a $500,000 home loan could save $400 per month by switching their entire mortgage from a 3% variable to a 2% fixed rate within the next four weeks, according to a report by Daily Mail Australia.
AMP Capital chief economist Shane Oliver said that buyers who fear missing out on ultra-low rates would likely flock to the market to lock in a loan this month, leading to another spike in house prices in an already red-hot market.
“As we hear more and more talk about ‘fixed rates have bottomed,’ I suspect we will start to see more of a rush by people to get into the property market,” Oliver told Daily Mail Australia. “It can have a psychological impact; it’s another sign that the days of 2% fixed mortgages are probably coming to an end.”
Sally Tindall, research director at RateCity.com.au, told the publication that more fixed-rate loans would rise next month.
“We expect more fixed rates will rise after the RBA’s term funding facility wraps up at the end of this month and we edge closer to the next cash rate hike,” Tindall said.
Read more: Another major lender raises fixed rates
The RBA launched the TFF at the height of the COVID-19 pandemic last year to provide financing for cheap loans. With the TFF set to expire June 30, banks have only a few weeks to lock in financing from the remaining $75 billion in the TFF so borrowers can enjoy cheap loan rates until 2024.
However, Oliver told Daily Mail Australia that borrowers who now have 2% fixed rates needed to be prepared for their mortgage rate to double to 4% when the fixed-rate term expires in 2024.
“They should be warning them: 2024 is the big one to watch,” Oliver said.
Meanwhile, property prices continue to rise. Westpac is predicting Australian house prices to climb by 15% this year before slowing to 5% in 2022.
Oliver predicted that house prices in Sydney will rise by 20% this year and slow to 7% next year.
Sydney house process rose by 3.5% last month, and Oliver predicted that a 2.5% spike was likely for June before the end of ultra-cheap fixed rates slowed down the pace of growth.
“We’ve probably seen the peak of growth,” he told Daily Mail Australia. “The rate increase will slow down to more sustainable levels as poor affordability and higher fixed mortgage rates impact.”
Ryan Smith is currently an executive editor at Key Media, where he started as a journalist in 2013. He has since he worked his way up to managing editor and is now an executive editor. He edits content for several B2B publications across the U.S., Canada, Australia, and New Zealand. He also writes feature content for trade publications for the insurance and mortgage industries.
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