Why are home loan rates climbing when the cash rate remains so low?

Why are home loan rates climbing when the cash rate remains so low?

By and large, home loan rates are influenced by the Reserve Bank’s cash rate.

The cash rate is a good indicator of the short- and long-term wholesale funding costs incurred by banks and lenders, allowing them a chance to adjust before they foot the cost directly.

So, with some lenders taking the opportunity to raise their fixed and even variable loans, how could they be forecasting for any increases when the RBA Governor is on record stating the rate will not grow from its current historic low of 0.10% until 2024?

There are two factors that could have brought this about.

The proposed roll-back of the Reserve Bank’s Term Funding Policy is currently set down for June, meaning the existing low-cost funding pool many banks have access to will no longer be available.

Any extension would have only happened if there was tangible and obvious deterioration in funding and credit conditions, but with no evidence of this banks could be getting on the front foot.

Meanwhile, the rising Government 10-year bond yield could also be a factor – the yield currently sits at 1.67%, which is almost double this time last year.

Banks often look to this as it is often influential towards inflation and various other metrics and may be attempting to be proactive.

Call Interlease today and take advantage of our low, fixed-rate options which, coupled with the advantages of the current Instant Asset Write Off (IAWO) benefits, makes now a great time to lock in borrowing costs to avoid anticipated rises in variable bank pricing eluded to above.