When do the big four banks think mortgage rates will rise?

Even though the Reserve Bank of Australia (RBA) held the national cash rate at its record low of 0.10 per cent in February 2022, change is in the air. While it’s not yet known exactly when the RBA will raise the rate that affects everything from mortgage repayments to savings accounts, the nation’s big four banks are making preparations based on their own forecasts.

What is the cash rate?

Australia’s cash rate is the interest rate used by Australia’s banks and other financial institutions when they borrow and lend cash from and to one another to provide services to their customers. 

When the cash rate is low, it effectively become cheaper for banks to lend money, resulting in the ultra-low interest rates seen on home loans over the last few years. Of course, it also leads to the low rates on savings accounts and term deposits, making it much harder for savers to grow their wealth by earning interest on their savings.

What does the RBA say?

The RBA has long maintained that it doesn’t intend to raise the national cash rate until inflation is “sustainably within the 2 to 3 per cent target range”, which it previously forecast wouldn’t take place until sometime in 2024.

However, recent figures have shown that the economy may be recovering from the recent lockdowns, with inflation picking up faster than anticipated. If it remains within the target range, the RBA may see its policy goals met sooner rather than later.

Of course, nothing is certain, and the RBA has reiterated that it is “prepared to be patient” as it monitors inflation, unemployment, wage growth, and other factors that could affect its decisions around the cash rate.

What are the big four banks doing?

Australia’s big four banks – ANZ, Commonwealth Bank, NAB and Westpac – have also been keeping a close eye on the economy. While all four of these banks have raised interest rates on their fixed home loan offers, their variable rates are currently still on the low side. Additionally, each bank has made its own predictions of when rates may rise.

ANZ

ANZ recently hiked fixed rates for owner-occupiers by up to 0.40 per cent, while cutting the variable rate on its basic investor loan for new customers.

ANZ senior economist, Adelaide Timbrell, expects that the RBA may raise the cash rate as soon as September 2022, forecasting that the cash rate could increase to 0.75 per cent by the end of 2022, and reach 2 per cent by the end of 2023.

Commonwealth Bank

The Commonwealth Bank (CBA) recently hiked fixed rates by up to 0.20 per cent for owner-occupiers and investors.

CBA head of Australian economics, Gareth Aird, predicts that the cash rate will rise by 15 basis points to 0.25 per cent in August 2022, immediately followed by a 25 basis point rise to 0.50 per cent in September 2022.

Mr Aird also forecasts three more 25 basis point increase to the cash rate in Q4 22, Q1 23 and Q2 23, until the cash rate reaches 1.25 per cent.

NAB

NAB recently raised its fixed rates by up to 0.20 per cent for owner-occupiers and investors.

In the recently released NAB Residential Property Survey for Q4 2021, NAB forecast that the RBA would start raising the national cash rate by November 2022, with the cash rate target to be “lifted by 65 bps from 0.1% by February 2023”, followed by steady increases over 2023 and 2024.

NAB has also forecast that rising mortgage rates following the cash rate hikes could see house price growth end up flat by the end of 2022, and even fall by 10% by the end of 2023.

Westpac

Westpac was the first of the big four banks to raise its fixed rates in 2022, increasing fixed rates for owner-occupiers and investors by up to 0.20 per cent in January 2022. Westpac’s subsidiaries, including St George, Bank of Melbourne and BankSA, also hiked fixed rates.

A recent Westpac article indicated that the RBA cash rate would rise in August 2022,  and again in October 2022, until the cash rate reaches a peak of 1.75 per cent by the first quarter of 2024.

What will happen to you when the cash rate rises?

When the RBA eventually hikes the cash rate, mortgage lenders large and small are likely to hike their own interest rates to match. While borrowers already locked into fixed rate mortgages will keep making the same repayments for the time being, those on variable rates may feel the sting of rising repayments – something that over 1.1 million households have never previously experienced. Depending on your financial situation, it’s possible that an increase to the cash rate could lead to your household experiencing mortgage stress.

Keep in mind that refinancing to a home loan that may better suit your needs could be an option. With many home owners reportedly up to four years ahead on their repayments, many borrowers may have enough equity available in their properties to switch to more affordable home loan deals.

Also, if house prices do fall in response to rising interest rates (as forecast by NAB), first home buyers could find it that little bit easier to afford the deposit required to get their foot on the property ladder, provided they can still afford the repayments for a home loan with a higher interest rate.

Compare home loans in Australia