Falling lender rates provide refinancing opportunities for borrowers; lowest 1- & 3-year fixed rate now at 3.49%
- Falling fixed interest rates are providing great opportunities for home owners to refinance and save.
- A fall in funding cost combined with lending criteria tightening post the Hayne Royal Commission has been the catalyst for rate reduction by banks.
- Loan volumes continue to fall which means lenders are likely to keep rates highly competitive.
- The lowest fixed rate on offer at the moment is 3.49% by Suncorp on 1- and 3-year fixed rate product.
- Possible future rate cuts by the RBA or assessment rate cut by APRA will further boost borrowing power of borrowers and may provide a floor for the housing market price action.
Borrowing interest rates continue to fall
Even though the predicted RBA rate cut didn’t eventuate this week, the borrowing rates offered by banks continue to decline, particularly the fixed rate. This is improving the affordability of mortgages for new-borrowers in the market and creates opportunities for existing borrowers to refinance.
Exhibit 1: Fixed rates offered by major banks continue to decline while Variable rate is stable
Future rate cuts are possible and that will definitely drive variable rates lower. Based on historical data, the last RBA cash rate cut in August 2016 encouraged the big four banks to implement a mortgage rate cut between 0.10-0.14 percentage points. Over 2019, most economists are predicting two rate cuts which will act to boost spending power of customer with variable rate loans, increase consumer sentiment and bring relief to borrowers in the market.
In addition, there has been increasing commentary around APRA (Australian Prudential Regulation Authority) reviewing the assessment rate (rate at which serviceability is calculated for new borrowers) that is currently at 7%. A 0.25% cut in the assessment rate in the future will result in an increase in demand and will improve the average customers borrowing capacity by 5%.
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