Variable mortgage rates set to rise by 0.25% – what will banks do for savers?

The Reserve Bank has today increased the cash rate by 0.25 percentage points to 2.85 per cent, the highest level since the April 2013 RBA meeting.

The RBA has today made it clear further cash rate hikes are coming, particularly with inflation now expected to peak at 8 per cent by the end of this year.

The big four banks are expected to pass this latest hike on in full, as they have done following the last six RBA rate rises.

Expected increase in mortgage repayments 

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Starting rate is the RBA av. existing owner-occupier variable rate of 2.86% in April and assumes banks pass the hikes on in full.

The question is, what will the banks do for savers?

RateCity.com.au analysis shows:

• Just 20 banks have passed on the full RBA hikes (or more) to at least one savings account.
• The big four banks’ online savings accounts still only offer ongoing rates of between 0.60% and 1.10%, before today’s RBA hike is factored in.

What should savers do?

Three banks already offer ongoing savings rates of 4 per cent or more including ING, Move Bank and BOQ, with another two or more potentially to follow on the back today’s hike (excludes kids accounts but includes young adult accounts).

If the cash rate hits 3.85 per cent in the first half of next year, as currently predicted by Westpac and ANZ, a handful of ongoing savings rates could climb over 5 per cent.

However, this will depend on whether the market leaders to continue to pass on full hikes.

Source: RateCity.com.au. Assumes market leading saving rate rises in line with ANZ cash rate forecast.

RateCity.com.au research director, Sally Tindall, said: “Inflation is proving to be a bigger beast than previously anticipated and it will take more rate hikes to tame.”

“Variable home loan rates have now risen 2.75 percentage points since May. The big question is what will banks do this time for savers,” she said. 

“Savings rates might be on the rise, but banks aren’t handing out these hikes to everyone.

“Household deposits might be at a record high but the banks are hungry for more to help fund their home loans. That said, they’re going to look for ways to attract new funds without having to blow out their profit margins.

“As a result, many banks are still picking and choosing which savings customers get a hike and which miss out.

“If you’ve got your hard-earned cash in a big four bank online saver account, you’re likely to be one of the millions of customers being taken for a ride,” she said.

What should borrowers do?

As a result of today’s 0.25 percentage point hike, the average owner-occupier who hasn’t renegotiated their loan recently will soon be paying an estimated rate of 5.61 per cent.

That said, a competitive rate after this latest hike filters through will be under 4.5 per cent for owner-occupiers paying principal and interest.

Consider refinancing while you can

RateCity.com.au analysis shows if an owner-occupier variable borrower with a $500,000 debt at the start of May, and 25-years remaining, refinances to a rate of 4.5 per cent today, they could save $10,268 in the next two years.

Source: RateCity.com.au. Based on an owner-occupier paying principal and interest with 25 years remaining. Assumes cash rate rises in line with ANZ forecast. Includes discharge fees but not upfront fees, which can vary from lender to lender.

Sally Tindall said: “If the banks pass on this RBA hike in full, the average variable owner-occupier could soon be paying a rate of 5.61 per cent.”

“After the November rate hike is passed on, we expect a competitive rate to be under 4.5 per cent,” she said.

“Time is money. For the average borrower, every month you wait to refinance a half a million dollar loan is costing you around $300 a month.

“Many people might even find they won’t get access to the biggest discounts as property prices slide. Some borrowers might find they can’t refinance at all.

“Stop kicking yourself that you didn’t fix when rates were at record lows. Instead, take action now while you still have the equity in your loan and claw back some of those savings,” she said.  

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