Rates of the Nation Report, January 2017

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

Home loans

Home loan rates began to rise towards the end of the December quarter, despite no change to the cash rate. Banks initially lifted fixed rates, betting on where rates would be in the future. Later, some banks began to lift variable home loan rates. Longer-term fixed rates are sitting higher than variable rates and rising by the biggest margins, which indicates that banks don’t expect low rates will last forever. 

Credit cards

The average purchase rate on credit cards lifted slightly this quarter with hikes made at both ends of the rate spectrum. Two out of three of the lowest-rate cards on the market had their rates lifted, while the highest rate in the market increased by 1 percentage point to 24.5 per cent – the highest on record. 

Term deposits

Interest rates on term deposit accounts remained low – and falling – across the board, with the biggest cuts applied to 1-year term deposits. Rates on bonus saver accounts increased slightly on average, yet the most competitive rates were cut significantly this quarter as banks moved to protect profit margins.

Commentary – Peter Arnold, Data Insights Director

The cash rate remained on hold at 1.50 per cent during the December quarter, yet a growing number of economic indicators suggested we’d reached the end of the rate-easing cycle.

Notably, the banks began to hike their home loan rates with close to two-thirds of lenders increasing rates on fixed loans and a smaller number lifting variable rates.

Previously, banks were betting on lower rates in the future but we saw those expectations change daily during the past quarter. The ‘Under 4 Club’ for fixed rates contracted by 15 per cent over the quarter; that’s around 100 less sub-4 per cent fixed rates on offer now compared to three months ago.

Consumers quickly responded and appetite shifted towards fixed rates. We saw interest through RateCity for fixing rise by close to 30 per cent towards the end of the year.

Meanwhile warnings came from leading international forecasters, which said the hikes were needed to “unwind tensions from the low-interest environment, notably in the housing markets”.

There were two upsets in the domestic housing market; new house sales dropped to their lowest level in two years, and support grew to review negative gearing tax rules.

Looking abroad, the Federal Reserve lifted US rates in December, and while the move eased pressure on the RBA to lift the cash rate when it meets in February, the outlook for higher rates in 2017 remains.

Some banks took the opportunity to lift rates on credit cards during the quarter, with increases made at both ends of the rate spectrum. Two of the lowest-rate cards on the market increased purchase rates from 8.99 per cent to 12.99 per cent, while the highest rate in the market lifted by 1 percentage point to 24.5 per cent – the highest on record. 

Deposit rates on the other hand, began to slide during the first quarter of the new financial year as banks moved to further protect their profit margins.

Looking ahead to 2017, consumers should expect more rate rises and an even tougher time finding a good rate on their savings. While there are still plenty of home loan rates under 4 per cent, those deals are less prevalent now. It’s unlikely that we’ll see rates return to the long term average of around 7 per cent just yet, but competition at the low-rate end of the market is slowing.

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

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