Commonwealth Bank raises its fixed interest rates by as much as 1.4 percent and warns that the Reserve Bank will hammer mortgage holders next week
Commonwealth Bank has increased fixed-rate mortgages by 1.4 percentage points
Australia’s largest mortgage lender expects interest rates to rise 0.5 percentage point in July
This would push the cash interest rate to a three-year high of 1.35 percent from 0.85 percent
Reserve bank increase next month after May, June – biggest increase since 1994
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Australia’s largest mortgage lender has raised its fixed mortgage rate by 1.4 percentage points, a clear sign that it expects a rise in official interest rates.
The Commonwealth Bank on Thursday raised its fixed mortgage rates for both owner-occupiers and investors who want a term of one to five years.
The CBA’s lowest one-year fixed interest rate rises from 3.59 percent to 4.99 percent.
The five-year interest rate rose from 5.29 percent to 6.69 percent.
Sally Tindall, Research Director of RateCity, said the rise in Commonwealth Bank’s fixed mortgage rates was unusual.
“Australia’s largest bank’s current rate hikes are anything but typical,” she said.
‘We have not seen any one-off increases of this magnitude and scale from CBA in our records.’
Australia’s largest mortgage lender has raised its fixed mortgage rate by 1.4 percentage points, a clear sign that it expects a rise in official interest rates. The Commonwealth Bank on Thursday raised its fixed mortgage rate for both owner-occupiers and investors seeking a term of one to five years (pictured is a bank branch in Sydney)
The Commonwealth Bank said a 0.5 percentage point increase in the Reserve Bank on July 5 is now more likely after a 5.2 percent increase in the minimum wage.
This would push the Reserve Bank of Australia’s cash interest rate to its three-year high of 1.35 percent from 0.85 percent, and a floating-rate borrower with an average loan of $600,000 would pay an additional $136 per year. month for their mortgage payments.
Gareth Aird, the CBA’s Australian economics chief, said Reserve Bank governor Philip Lowe had already given several indications that a half-point increase in July was more likely.
“A 50 basis point increase next week seems like the most obvious policy choice,” said Mr Aird.
Short-term exemption from variable interest
While fixed interest rates have risen, the Commonwealth Bank has cut variable rates on Extra Home Loan by 0.15 percentage points, bringing the lowest discount rate from 2.94 percent to 2.79 percent.
The more popular variable CBA rate, with less severe credit card restrictions, is also down 0.15 percentage points from 3.04 percent to 2.89 percent.
“While CBA has turned its back on competition in the fixed-rate industry, it has turned its sights entirely on acquiring new floating-rate clients,” said Ms. Tindall.
The relief would be very short-lived, as the CBA’s floating rate was cut just five days before the Reserve Bank’s next monthly meeting.
Sally Tindall, Research Director of RateCity, said the rise in Commonwealth Bank’s fixed mortgage rates was unusual
What does a rise in Reserve Bank interest mean?
Under the new, lower floating rate of 2.89 percent, a Commonwealth Bank borrower with an average mortgage of $600,000 would pay $2,079 per month in repayments.
But an increase in the RBA cash rate by half a percentage point would push that rate up to 3.39 percent, raising monthly repayments by $136 to $2,215 if CBA passed on the official increase in full.
Like its rival Westpac, Commonwealth Bank expects a 0.5 percentage point increase at its July 5 RBA meeting, bringing the spot rate to 1.35 percent – the highest level since June 2019.
The 0.5 percentage point increase in June marked the first step of half a percentage point since February 2000.
The 0.25 percentage point increase in May was the first increase since November 2010.
With another rate hike in July, spot rates would rise for the first time in nearly 12 years for three months in a row.
An increase of half a percentage point next month would also mean that home borrowers would have weathered a 1.25 percentage point increase in just three months.
This would be the strongest rate of increase in such a short time since late 1994.
Mr Aird said a 5.2 percent increase in the minimum wage would likely be used as an excuse to raise the cash interest rate by half a percentage point in July.
The Commonwealth Bank expects the Reserve Bank to raise the spot rate by 0.25 percentage points in August, September and November, bringing the spot rate to 2.1 percent, the highest level since May 2015.