Westpac bumps up fixed-term home loan rates

Westpac has pulled the nation’s lowest four-year fixed year home loan from the market, potentially signalling the end of record low rates.

The nation’s second largest bank has hiked both its four and five-year fixed rates by 30 basis points, ending its market leading position of 1.89 per cent for four-year fixed mortgages.

Westpac’s new rate now sits at 2.19 per cent for a four-year fixed-term rate, while the five-year rate has been bumped up to 2.49 per cent.

The cuts to rates have occurred across the group’s subsidiaries, including St George, Bank of Melbourne and BankSA.

Its decision follows 14 other lenders matching Commonwealth Bank’s controversial move to lift long-term rates.

NAB is the only lender out of the big four banks to offer a four-year rate under 2 per cent.

Hiking rates has partly been sparked by the Reserve Bank anticipating an increase in the official cash rate in three years.

RateCity research director Sally Tindall said it was only a matter of time before the major banks jacked up rates.

“Westpac held out as long as it could, but with a cash rate hike on the cards in 2024 and the RBA’s term funding facility wrapping up in a couple of months, the bank’s record-low four-year fixed rate was unsustainable,” she said.

“While the majority of banks’ three-year fixed rate changes are still cuts, rather than hikes, the tide could turn later this year as the economy continues to recover.”

The RBA’s term funding facility was brought in to enable the banking sector to have access to extra funding to help drive down the price pressure of loans to businesses and households.

It was an additional scheme in conjunction with the RBA slashing the official cash rate to 0.1 per cent in November last year.

Low mortgage rates of less than 2 per cent were sparked by the three interest rate cuts in 2020.

Ms Tindall noted the cost of the RBA’s funding to the banking sector was likely to increase in coming years as the economy rebounds from the COVID-19 pandemic.

“The cost of funding is likely to increase, so it’s no surprise lenders are starting to factor this in,” she said.

“If you are looking to fix your rate and haven’t done so yet, don’t panic. There are still plenty of competitive fixed rates on the market.”

BankVic is offering the lowest four-year fixed term rate in the market at 1.95 per cent, while Reduce Home Loans is advertising the lowest variable rate at 1.77 per cent.

The RBA has flagged current policy settings are likely to remain in place while inflation and wages growth remains under its target range of 2 to 3 per cent.