Will fixed rates rise in 2022? Here’s what the experts say

Wondering when fixed rates could rise in 2022 or nervous you’ve missed your chance to lock in a fixed rate before the cash rate hikes? Experts from the big four banks weigh in, and you may be shocked at their predictions.

Whether you’re a first home buyer or considering refinancing your mortgage, the predicted cash rate hikes may have you considering fixing your home loan rate.

Interest rate charges are one of the most significant costs associated with a mortgage, and for everyday Aussies, keeping your home loan repayments down is crucial for the household budget.

To know if interest rates will rise, we need to investigate whether the cash rate could increase in the near future. Let’s see what the experts from Australia’s biggest banks have to say.

Will the cash rate lift soon? The experts weigh in

The Reserve Bank of Australia (RBA) has kept the cash rate on hold at 0.10% since November 2020.

Despite the current global turmoil, economists from the big four banks still expect the RBA to start hiking the cash rate later this year.

Big four bank forecasts: how high will the cash rate go and when?

• CBA: hikes to start in June. Cash rate to reach ‘neutral’ rate of 1.25% by March 2023.
• Westpac: hikes to start in August. Cash rate to reach 1.75% by March 2024.
• NAB: hikes to start in November. Cash rate to reach 2.50% by November 2024.
• ANZ: hikes to start in September. Cash rate to reach 2.00% by November 2023 and peak above 3.00% but not until after 2024.

If these expert predictions are to be believed, then variable home loan rates will begin increasing in a matter of months. But it also means that fixed home loan rates should already be increasing well before a cash rate hike comes into play.

Fixed rates are already on the rise in 2022

Lenders generally will move interest rates in alignment with the RBA’s cash rate not just for home loans, but for savings accounts and term deposits as well. And in the case of fixed rates, these hikes usually come beforehand (as well as afterwards).

Low fixed rates on RateCity database

RateCity’s database shows that the average 3-year fixed home loan rate for owner-occupiers (paying principal and interest) has grown by 0.91% since March 2021.

Note: Average owner-occupier 3-year fixed rate (paying principal and interest) from 1 March 2021 to 1 March 2022.

This is because, generally speaking, when interest rates are predicted to rise customers will want to lock in a lower rate, so banks may lift fixed rates out-of-cycle with the RBA. This is so they don’t lose money charging much lower interest rates to customers when the cash rate is on the rise.

On the flip side, variable home loan rates will inevitably rise as well. So, one option homeowners have to potentially protect themselves from a rate rise is to lock in a lower rate home loan ahead of time.

Homeowners are already starting to turn away from fixed rate home loans due to these rising costs. The latest ABS data shows that at its peak in July last year, fixed rate home loans made up 46% of new loans. This has dropped to 34% in January, in original terms.

Source: Australian Bureau of Statistics, Lending Indicators January 2022, released 1 March. Percentages include internal and external refinancing, in original terms.

To fix or not to fix?

In times of predicted interest rate fluctuations, fixed rate home loans may offer customers protection from further rising mortgage costs.

By locking in a home loan rate for a fixed period, you ensure your mortgage repayments will not change over this time. This can offer stability for your household budget, and potentially protect you from higher costs compared to variable rate home loans, if the cash rate continues to rise.

However, fixed rate home loans have been on the rise for some time in anticipation of an eventual rate hike. This may mean that the savings aren’t as significant if you were to fix today than if you had 12 months ago.

And if home loan features matter to you, it’s worth keeping in mind that lenders typically offer these features, like an offset account or redraw facility, with their variable rate products. It’s not as common to find a fixed rate home loan offering these features.

While fixed rates have already begun increasing, this doesn’t mean you’ve missed out on your chance to lock in a competitive fixed rate home loan.

Some experts suggest that you may just need to act sooner rather than later. Research director for RateCity, Sally Tindall, said: “Since October last year, the average big four bank lowest 3-year fixed rate has risen by 1.37 per cent. That’s enough to prompt even a staunch fixer to reassess their strategy,” she said.

“If you’re still planning to fix, be aware the rates on offer today may not be here tomorrow,” she said.

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