We asked our panel of Australia's leading economists and mortgage industry experts to give their recommendations about where they think the average standard variable rate will be at the end of March 2010, and whether borrowers should consider fixing or staying variable. We calculated the average standard variable rate to be 6.01% as of 15 October 2009. These predictions by no means reflect where the rates will be for the banks or other lending institutions surveyed, and are instead intended as a guide. Forecasts may have changed since the time of the survey, as of 15 October 2009.
Where will the average standard variable interest rate be by the end of March 2010?
"The opportunity to snap up a good fixed rate has been and gone. Three-year fixed rates are now over 2% higher than variable rates. Consumers are best off shopping around for the best variable rate loan and paying as much off per month as they can afford. Provided the loan has a redraw facility, borrowers can then tap into their redraw to help cover higher repayment due to interest rate rises."
Heidi Armstrong, State Custodians Mortgage Corporation
Home loan rates: To fix or not to fix?
"The economy is still very delicate. Highly-leveraged first homebuyers in a weakening labour market are sensitive to rate rises. Current two-year fixed rates for the majors are: ANZ - 6.44%, Westpac - 6.99%, NAB - 6.69% and CBA - 6.84%. The average rate is 6.74%. Based on these figures, borrowers are better off remaining on a variable rate and making payments that reflect a rate of 6.85%. Payments based on this rate would pay off the loan sooner and provide cover for any significant upward movement in rates."
Richard Smart, National Manager Operations Mortgage House
"I am never a fan of fixing rates, especially for investors. By the time you take into account the tax breaks and the additional interest payable during the portion of the term where you were on a higher rate (that is,the beginning of the term when you are paying higher than the variable while you are waiting for variable rates to rise), then interest rates would need to rise by more than 3% for the majority of your fixed rate term to make this a viable strategy."
Margaret Lomas, Destiny Financial Solutions
"Homeowners who are still weighing up the question of "to fix or not to fix" need to be careful not to rush into a fear-based decision. Consumers also need to make sure they understand the limitations and general lack of flexibility that come with most fixed rate products. There can be high exit costs if they need to exit or alter the loan during the fixed period. Based on the information at hand, we feel most homeowners would be better off remaining with variable rate loans. But we urge them to engage a professional broker to assess their individual needs and situation."
Darryl Simms, Managing Director, Access Loans P/L
"It is clearly better to fix interest rates at the bottom of a monetary policy cycle than at the top. That said, financial markets have already priced in the expectation that the RBA will normalise rates – and this is already reflected in higher fixed rates."
Alex Joiner, Economist, Macroeconomics & Interest Rate Strategy, ANZ Global Markets
"Fixing or not is always a personal decision depending on financial circumstances and attitude to risk, but the time to fix has come and gone for now."
Harley Dale, HIA Chief Economist
"The vast majority of fixed rates are currently priced about 150 to 250 basis points above variable rates, which equates to over $400 extra per month on the average home loan. This is a significant amount for the average Australian. Borrowers need to ask themselves: 'How much do I value a steady repayment level?' and 'Where do I think rates are headed?' If they decide on fixing, then they should figure out whether they want to fix all or part of their loan."
Kristy Sheppard, Mortgage Choice
"Fix a portion as the interest rate cycle has likely bottomed, but leave some variable as variable rates are well below current fixed rates – and will take over a year to catch up."
Shane Oliver, Chief Economist, AMP Capital Investors
"The level of fixed rates is very high relative to variable rates at the moment. Therefore, going fixed involves a significant premium which may not be justified if the official cash rate is raised slowly by the RBA, or if the RBA does not raise the cash rate to the extent that is factored into current fixed rates. The best time to fix may have already passed by, and going variable is preferable at the moment."
Glenn Baker, Head of Treasury, ING Bank (Australia) Limited
"Considering economic data and lender statements available in Q3 2009, variable interest rates are likely to increase (if at a slow rate) so at first glance it would make sense to switch to the certainty of a fixed rate. However, if you compare current basic and Pro Pack variable rates in the low fives against fixed rates in the high sixes and sevens, variable rates are still the best option. If you are worried about rates increasing beyond the 7% range, then put part or all of your home loan debt on fixed rates. I’d still keep some on a comparatively low variable rate. As always, speak with your personal mortgage adviser if you have any doubts."
Martin Castilla JP | Personal Mortgage Adviser Smartline
"The variable rates are still well below current fixed rates at the moment so it makes sense to go with a lender that has low variable rate home loans. For example, PMP rates are still at 4.79% for our standard variable. So it would take a few rate rises to even come close to the current average standard variable rate."
Dean A. Mathieson, PMP
"Depending on their outstanding loan size, clients may wish to fix a portion of their loan. Even though we have had historically low interest rates, the current fixed rates on offer aren’t the lowest we’ve seen. Client need to be sure that when they fix they have calculated the benefit of fixing as opposed to staying variable – remembering that fixed rates loans are less flexible than variable rate loans."
Sarah Eifermann SFE Loans
"I do not consider it a good time to fix a rate, as fixed rates have already been increased in recent months. So even if the variable rate is increased, it will be lower than a fixed rate."
Iain Forbes, Director AFM
"It's too late to fix. Fixed rates already have locked in rises, so unless you want certainty over cost, stay variable. March 2009 was the right time to lock in!"
Martin North, Fujitsu Australia
"Because rates are expected to rise, the decision to fix comes down to how interest rate rises are likely to affect your personal situation, and what your personal tolerance for risk is. Fixed rates may be high relative to the variable rate you can access currently, but you need to keep in mind that the fixed rates could also rise further. Therefore you may be paying even more if you choose to lock in down the track. What you need to do is make the decision that you are most comfortable with today."
David Johnston, Property Planning Australia