What will happen to interest rates in 2017?

Posted: 3 January 2017 3:18 pm
News

RBA 2016 in review

The Reserve Bank could put an end to the "new normal" of low rates.

The forecast for interest rates in 2017 has changed drastically since 2016. While last year started with the near-certainty that rock-bottom rates were here to stay, this year begins with lenders having already hiked rates and the Reserve Bank of Australia (RBA) tipped to follow suit.

Low interest rates have been the “new norm” for some time now. The RBA began its current easing cycle all the way back in November 2011. Over the course of the last five years, the RBA has dropped the cash rate from 4.75% all the way to its current 1.50%.

Lenders have largely followed suit, with borrowing rates hitting record lows. But all the while lenders have cut rates, they have also been vocal about the increasing gulf between their funding costs and the Reserve Bank cash rate.

What happened last year

Coming into 2016, the Reserve Bank had maintained a “wait and see” approach for some time. Inflation remained low, but so did unemployment. The housing market had continued booming, and the Reserve worried further rate cuts could cause it to overheat.

At the outset of the year, 56% of the experts surveyed in finder.com.au’s Monthly RBA Survey expected the official cash rate to remain untouched at 2.00% for the duration of 2016. Only 34% foresaw a rate cut during the course of the year, with 52% tipping a rise in 2017.

But the Reserve Bank had some surprises in store for experts. In May, the Bank trimmed the official cash rate to 1.75%. This was in spite of 96% of experts in finder.com.au’s survey forecasting a rate hold. Economists and pundits were certain the RBA would maintain its “wait and see” approach, and hold fire until the Federal Budget. The RBA had other plans.

Home loan rate in review 2016

Along with the Reserve Bank cut came a wave of cuts from lenders, albeit at a slow pace. Lenders seemed to use the opportunity to take a stand on their funding costs. Many failed to pass on the RBA’s full 25 basis point cut. While three of the four major banks did pass on the full cut (ANZ cut by only 19 basis points), they took their time doing so. The big four waited an average of 20 days before passing on rate cuts.

When the lenders did pass on cuts, they did so with a warning: their funding costs were no longer directly tied to the RBA cash rate, so borrowers could no longer expect them to move in lock-step with the Reserve.

For the Reserve Bank’s part, it played to economists’ expectations when it chose to cut rates again in August. It moved on rates after figures from the Australian Bureau of Statistics (ABS) showed the lowest annual inflation rate in more than 17 years.

What 2017 could hold

Lenders stood their ground following August's rate cut, with many passing along half or less of the RBA’s 25 basis point reduction. The major banks averaged just an 11.75 basis point cut, and took between 10 and 21 days to make their changes.

The signal lenders sent in August was an important one. They would willingly suffer consumer ire in order to chart their own course on rates. This mindset was on full display following the final RBA meeting of the year. In spite of the RBA holding rates steady, lenders began to shift their rates upward.

The rate changes began with moves on fixed rates. This soon led to rate hikes for investor variable rates. Finally, lenders began to move variable rates upward for owner-occupiers.

The usual pattern for interest rates has been one of the RBA setting the course and lenders following suit. In 2017, it's possible these roles could be reversed. Lenders have already moved on rates, and 37% of experts surveyed by finder.com.au believe the RBA will follow suit within the next two years.

While the year began with economists predicting an RBA easing cycle continuing into the foreseeable future, most experts now believe the RBA’s next move will be up. After more than five years of easing, the Reserve Bank is tipped to begin tightening the official cash rate once again in 2017 or 2018.

At the outset of 2016, record-low interest rates appeared to the “new normal”. The year ahead appears to be anything but.

Compare today's rates below

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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)
2.29%
2.72%
$0
$8 monthly ($96 p.a.)
95%
Up to $3,000 refinance cashback.
A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.
St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)
2.54%
2.56%
$0
$0 p.a.
80%
Up to $4,000 refinance cashback With this competitive variable rate loan from St.George, refinancers borrowing $250,000+ can get up to $4,000 cashback and borrow up to 80% of the property's value (terms, conditions & exclusions apply).
Athena Celebrate Home Loan - 60% LVR  Owner Occupier, P&I
2.19%
2.19%
$0
$0 p.a.
60%
Owner occupiers with 40% deposits or equity can get this competitive variable rate loan. No upfront or ongoing fees.
Suncorp Home Package Plus Fixed - 2 Year Fixed Rate Special Offer $150k+ LVR ≤80% (Owner Occupier, P&I)
1.89%
2.94%
$0
$0 p.a.
80%
A low fixed rate loan available for borrowers with 20% deposits.
St.George Fixed Rate Advantage Package -  2 Year Fixed Rate LVR above 80% (Owner Occupier, P&I)
2.09%
3.46%
$0
$395 p.a.
95%
Lock in a low fixed rate for the first two years. Refinancers borrowing $250,000 or more can get cashbacks between $2,000 and $4,000 depending on their loan to value ratio (Other terms, conditions and exclusions apply
Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR ≤ 80% (Owner Occupier, P&I)
2.54%
2.55%
$0
$0 p.a.
80%
Get a competitive variable interest rate with no application fee or ongoing fees.
UBank UHomeLoan - 3 Year Fixed Rate (Owner Occupier, P&I)
1.75%
2.22%
$395
$0 p.a.
80%
A competitive fixed interest rate loan with no ongoing fees. Requires a 20% deposit.
Westpac Fixed Option Home Loan Premier Advantage Package - 2 Year (Owner Occupier, P&I)
2.09%
3.50%
$0
$395 p.a.
95%
Up to $3,000 refinance cashback.
Competitive fixed rate home loan. Eligible borrowers refinancing $250,000 or more can get up to $3,000 cashback. Other conditions apply.
homeloans.com.au Low Rate Home Loan with Offset - LVR Under 60% (Owner Occupier, P&I)
2.14%
2.16%
$0
$0 p.a.
60%
A competitive rate with no application or ongoing fee. This loan is not available for construction.
Virgin Money Reward Me Fixed Rate Home Loan - 2 Year $300k+ Special offer (Owner Occupier, P&I)
2.04%
2.79%
$300
$10 monthly ($120 p.a.)
80%
$3,000 refinance cashback.
Buy your home and lock in a low rate for the first two years. Get a $3,000 cashback when you switch to Virgin Money with a loan amount of $300,000 or more with an LVR up to 80%. You must apply by 29 November 2020 and settle by 28 February 2021.
IMB Budget Home Loan - LVR ≤80% (Owner Occupier, P&I, NSW and ACT borrowers only)
2.61%
2.67%
$449
$0 p.a.
80%
A competitive variable rate for borrowers with 20% deposits saved. Available for NSW and ACT borrowers only.
Macquarie Bank Basic Home Loan - LVR ≤ 60% (Owner Occupier, P&I)
2.49%
2.49%
$0
$0 p.a.
60%
A competitive variable rate home loan for owner-occupiers. Requires a 40% deposit.
Newcastle Permanent Building Society Real Deal Home Loan - Special Offer 1 (Owner Occupier, P&I)
2.59%
2.63%
$595
$0 p.a.
80%
$2,000 refinance cashback
$2,000 cashback for eligible refinancers borrowing $250,000 or more.
homeloans.com.au Low Rate Home Loan with Offset - LVR 60% to 80% (Owner Occupier, P&I)
2.24%
2.26%
$0
$0 p.a.
90%
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments. This loan is not available for construction.
St.George Basic Home Loan - LVR above 80% (Owner Occupier, P&I)
2.59%
2.61%
$0
$0 p.a.
90%
Up to $4,000 refinance cashback.
With this competitive variable rate loan from St.George, refinancers borrowing $250,000+ can get up $4,000 cashback and borrow up to 90% of the property's value. (Terms, conditions & exclusions apply).
IMB Budget Home Loan - Special LVR  ≤95% (Owner Occupier, P&I, NSW and ACT borrowers only)
2.78%
2.84%
$449
$0 p.a.
95%
NSW and ACT customers only. You can get an interest rate discount for a limited time with this competitive variable mortgage.
Bank of Melbourne Basic Home Loan - Special Offer (Owner Occupiers, P&I) LVR above 60% up to 80%
2.54%
2.56%
$0
$0 p.a.
80%
Up to $4,000 refinance cashback
A competitive variable rate loan from Bank of Melbourne. Refinancers borrowing $250,000 or more can get $4,000 cashback (Other terms, conditions and exclusions apply).
UBank UHomeLoan - 1 Year Fixed Rate (Owner Occupier, P&I)
1.99%
2.33%
$395
$0 p.a.
80%
Fix your mortgage for 1 year with a very competitive rate and no ongoing fees.
Bank of Melbourne Advantage Package Fixed Home Loan - 2 Year Fixed (Owner Occupier, P&I) LVR above 80% New customers
2.09%
3.46%
$0
$395 p.a.
95%
Competitive fixed rate loan. Refinancers borrowing $250,000 or more can get cashbacks between $2,000 and $4,000 depending on their loan to value ratio (Other terms, conditions and exclusions apply
BankSA Basic Home Loan - Owner Occupier, P&I
2.54%
2.56%
$0
$0 p.a.
80%
Up to $4,000 refinance cashback
A competitive variable rate loan from BankSA. Refinancers borrowing $200,000 or more can get a $4,000 cashback (Other terms, conditions and exclusions apply).
homeloans.com.au Low Rate Home Loan with Offset - LVR 80% to 90% (Owner Occupier, P&I)
2.59%
2.61%
$0
$0 p.a.
90%
Save on interest with a free 100% offset account and buy your property with just a 10% deposit. This loan is not available for construction.
Bank of Melbourne Basic Home Loan - Special Offer (Owner Occupiers, P&I) LVR above 80% New customers
2.59%
2.61%
$0
$0 p.a.
90%
Competitive variable rate home loan. Refinancers borrowing $250,000 or more can get cashbacks between $2,000 and $4,000 depending on their loan to value ratio (Other terms, conditions and exclusions apply
IMB Fixed Rate Home Loan - 3 Year Fixed (LVR 95% Owner Occupier, P&I, NSW and ACT borrowers only)
1.97%
2.81%
$449
$6 monthly ($72 p.a.)
95%
NSW and ACT customers only. 3 years fixed interest terms and free access to redraw facility online. Available with a 10% deposit.
Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier, P&I)
2.58%
3.99%
$595
$0 p.a.
95%
$2,000 refinance cashback
Borrow up to 95% LVR of the value of the property you're buying and pay no ongoing fees. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
BankSA Advantage Package Fixed Home Loan - 2 Year Fixed (Owner Occupier, P&I)
2.09%
3.46%
$0
$395 p.a.
95%
Competitive fixed rate loan. Refinancers borrowing $200,000 or more can get cashbacks between $2,000 and $4,000 depending on their loan to value ratio (Other terms, conditions and exclusions apply
Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I
2.29%
2.23%
$0
$0 p.a.
80%
A competitive variable rate mortgage for owner occupiers $0 application and $0 ongoing fees. This interest rate falls over time as you pay off the loan.
Virgin Money Reward Me Variable Home Loan - LVR ≤ 60% (<$500k Owner Occupier, P&I)
2.59%
2.76%
$300
$10 monthly ($120 p.a.)
60%
$3,000 refinance cashback.
A variable rate loan for owner occupiers with a 40% deposit (or equity) borrowing under $500,000. Get a $3,000 cashback when you switch to Virgin Money with a loan amount of $300,000 or more with an LVR up to 80%. You must apply by 29 November 2020 and settle by 28 February 2021.
Athena Evaporate Home Loan - 60% to 70% LVR  Owner Occupier, P&I
2.24%
2.21%
$0
$0 p.a.
70%
A low variable rate for owner occupiers with 30% deposits. No upfront or ongoing fees.
HSBC Home Value Loan - Promotional Offer LVR 90% (Owner Occupier, P&I)
2.64%
2.65%
$0
$0 p.a.
90%
A competitive value home loan with no ongoing fee.
UBank UHomeLoan Variable Rate - Discount Offer for Investor Variable P&I Rate
2.74%
2.74%
$0
$0 p.a.
80%
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
Newcastle Permanent Building Society  Premium Plus Package Fixed Rate - 2 Year Fixed (Owner Occupier, P&I)
2.48%
3.77%
$0
$395 p.a.
95%
$2,000 refinance cashback
Enjoy a discounted fixed rate and the ability to package the loan with other financial products. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
IMB Fixed Rate Home Loan - 2 Year Fixed (LVR 95% Owner Occupier, P&I, NSW and ACT borrowers only)
2.09%
2.90%
$449
$6 monthly ($72 p.a.)
95%
NSW and ACT customers only. 2 years fixed interest terms and free access to redraw facility online. Available with a 5% deposit.
UBank UHomeLoan - 3 Year Fixed Rate (Owner Occupier, IO)
2.09%
2.30%
$395
$0 p.a.
80%
A competitive 3 year fixed rate with no ongoing bank fees.
Athena Variable Home Loan - Owner Occupier, IO
2.84%
2.46%
$0
$0 p.a.
80%
Owner occupiers can refinance to one of the most competitive interest-only rates in the market. No application fee and no ongoing fees.
UBank UHomeLoan - 1 Year Fixed Rate (Owner Occupier, IO)
2.14%
2.35%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
IMB Fixed Rate Home Loan - 3 Years Fixed (LVR ≤90% Investor, P&I, NSW and ACT borrowers only)
2.64%
3.40%
$449
$6 monthly ($72 p.a.)
90%
NSW and ACT customers only. A 3 years fixed rate investor which allows extra repayments to be made.
CUA Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier, P&I)
1.97%
3.86%
$600
$0 p.a.
95%
Pay no ongoing fees and lock in your rate for 3 years to organise your budget. Eligible new home buyers with low deposits can apply for the First Home Loan Deposit Scheme with this lender and avoid LMI costs.Eligible refinancers can get a $2,000 pre-paid credit card when they switch to CUA.
UBank UHomeLoan - 1 Year Fixed Rate (Investor, IO)
2.29%
2.72%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer Discount 1 ($150k+ Owner Occupier, P&I)
2.94%
3.34%
$0
$395 p.a.
95%
$2,000 refinance cashback
New borrowers or refinancers can get a discounted rate with this package loan. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
Macquarie Bank Basic Home Loan - LVR ≤ 80% (Owner Occupier, P&I)
2.64%
2.64%
$0
$0 p.a.
80%
Pay no application and ongoing fees and take advantage of split and redraw options.
Macquarie Bank Basic Fixed Home Loan - 3 Year Fixed Rate LVR ≤ 70% (Owner Occupier, P&I)
2.09%
2.43%
$0
$0 p.a.
70%
Get a low interest rate and a mortgage with flexible, basic features. No application or ongoing fees. Requires a 30% deposit.
Newcastle Permanent Building Society Fixed Rate Home Loan - 1 Year Fixed (Owner Occupier, P&I)
2.38%
4.11%
$595
$0 p.a.
90%
$2,000 refinance cashback
Investors can take advantage of a short term fixed rate with no ongoing fees. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
UBank UHomeLoan - 1 Year Fixed Rate (Investor, P&I)
2.14%
2.71%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier, P&I)
2.58%
3.86%
$595
$0 p.a.
95%
$2,000 refinance cashback
A low 3-year fixed rate with the option to split your loan for free. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
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