Rates of the Nation Report, October 2016

The Rates of the Nation report is an historical analysis of interest rates in the home loans, credit cards and deposits space for the September quarter. 

Home Loans

Home loan rates trended downwards during Q1, following an RBA rate cut in August and continued competition among lenders. One in five mortgages now has a rate under 4 per cent.

The August RBA cut brought another 161 variable rate home loans under the 4 per cent mark. As a result, 18 per cent of all variable home loan products now sit in the ‘Under 4 Club’, up from around 10 per cent in July. Rates under 3.8 per cent are widely available for those owner-occupier borrowers with a minimum of 20 per cent equity or deposit.

The below graph illustrates the change in average rates offered over an 18-month view.

The below graph illustrates the change in the gap between ideal borrower and investor rates offered over an 18-month view.

The below graph illustrates the change in the gap between the average rate and lowest rate offered to owner-occupiers over an 18-month view.

The below graph illustrates the change in the gap between the average rate and lowest rate offered to investors over an 18-month view.

The below graph illustrates the change in the share of loans available to borrowers depending on deposit size over an 18-month view.

Credit Cards

Rates fell by just 4 basis points in Q1, yet remain comparatively high against other lending products and 11 times the cash rate – little change since the Senate hearing in 2015.

Deposit Accounts

On average, deposit rates continued to fall in the first quarter, with the exception of some 3-year term deposit accounts, which spiked temporarily following the August RBA cut.

The below graph illustrates the change in average rates offered over an 18-month view.

The below graph illustrates the change in the gap between the average rate and highest rate offered on bonus saver accounts over an 18-month view.

The below graph illustrates the change in the gap between the average rate and highest rate offered on three-month term deposit accounts over an 18-month view.

Commentary

With the cash rate cut to 1.50 per cent in August, there was a lot of interest rate action during the past quarter – particularly in the mortgage and deposit spaces, yet little movement in credit card rates.

A lower cash rate was partly a result of the sluggish inflation figures, volatility in the dollar and a labour market that undershot expectations. However, lower home loan rates were largely due to continued competition among a handful of bullish mortgage lenders vying to offer the best rates.

Evidently, while less than half of the RBA’s August cut was handed down to mortgage holders on average, variable rates dropped sharply to a new record low of 3.35 per cent. Fixed rates are now as low as 3.59 per cent for three years.

As borrowing has become cheaper, however, the share of loans available to borrowers with a 5 per cent deposit has fallen by a third in the past 18 months. At the start of last year, a borrower with a 5 per cent deposit had the choice of more than two-thirds of all home loan rates in the market. That’s shrunk to just half of all rates and we expect the trend to continue as lenders increasingly favour ‘ideal borrowers’. Notably, the gap between rates offered to owner-occupiers and investors continued to widen during the quarter – growing to 0.24 per cent. 

In the deposit space, online and bonus saver rates continued to slide. Term deposits spiked temporarily, taking some of the heat out of the big banks’ decision to withhold part of the August rate cut handed down to mortgage customers. But TD rates have since fallen to pre-August lows.

The outlook for the rest of the calendar year is for the low rates to remain or fall further. Mortgage lenders have continued to cut rates out of cycle in October and we anticipate that the cash rate will remain steady until 2017.

For further commentary or more detailed rate analysis, please get in touch.

Compare home loans in Australia