You may have noticed a number of banks raising their long-term interest rates ever so slightly. After so many years of ultra-low interest rates, it’s a noteworthy development. The key question is why, and does this signal a change in interest rate direction? We investigate below.
As a starting point, the RBA remain firm in their no change to interest rates stance, which is expected to remain in place until 2024. However, something else is afoot. The RBA has been providing additional emergency funding support to help mitigate the economic impacts of COVID – it’s known as the Term Funding Facility. It’s been a sizeable support package: $200 billion to be precise. It’s been great news for the banks as they’ve been able to borrow from the RBA at an interest rate of only 0.1%. As a result, they’ve been able to offer sub-2% fixed interest rate mortgages which were previously unheard of in Australia.
The noteworthy development is that the Term Funding Facility comes to an end at the end of June. That means the banks must then go back to funding all property loans at the prevailing market rate. Most analysts believe this shift will add around 20 basis points to a long-term fixed interest mortgage rate after June 30th. The good news is it’s likely to be a short term market adjustment, rather than a longer term change in interest rate direction.
Landen’s Director Jim Dionysatos remains positive on the funding environment: ‘We see the current ultra-low interest rate environment as remaining broadly in place for the coming few years. Current fixed interest rate mortgages look particularly attractive, and after a small adjustment from July, interest rates are likely to stabilise. It remains a great time to be a property investor.’