We asked our panel of Australia’s leading economists and mortgage industry experts to give their recommendations on where they think the average standard variable rate will be at the end of 2009. After recent rate cuts by the Reserve Bank of Australia and major lenders, we calculated an average standard variable rate of 6.82% as at December 2008. 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 at 4 December 2008.
Where will the average standard variable interest rate be by April 2009?
"Remain with their variable rate mortgage as interest rates are still trending downward. The only reason you would fix your rate now is if you were looking for a low one-year fixed rate that would provide you with a clear cash-flow position, but even then someone always loses when there's a fixed rate involved. It's either the borrower or the lender – and it’s rarely the lender. Keep your loan at the variable rate, and take advantage of these latest rate cuts to pay more off it. You'd be surprised just how much you can save in interest and the term of it by paying a little more. It will also give you a buffer for when rates begin to go upwards again"
Lisa Montgomery, head of marketing and consumer advocacy, Resi
"As we will still be in an interest rate easing cycle, it's preferable to remain on variable rate"
Glenn Baker, head of treasury, ING Direct
"Variable and fixed rates have further to fall, so it's too early to fix. Home borrowers should start to think about fixing a portion of their loan over the next six months, though"
Shane Oliver, head of investment strategy and chief economist, AMP Capital Investors
"Every consumer's personal situation differs; therefore, it's important to discuss individual needs with a professional broker prior to locking in to a fixed rate. Bearing this in mind, our viewpoint, along with that of many economists, is that interest rates still have some way to fall. So, at this point, we would not be recommending locking in to a fixed rate product"
Darryl Simms, managing director, Access Loans P/L
"Start looking for fixed rates around 1–2% lower than the current variable for one to two years then lock in. More than two years is too long"
Gino Marra, CEO, Carrington National
"Obviously, with another 1% drop in rates priced in by the markets, this is not the time to be fixing your home loan rates. Fixing home loan rates should start to look attractive sometime, possibly in the next six to 12 months. However, consumers need to understand that fixed rates are priced on where markets expect rates to move in the future. So while the majority of fixed rates have been lower than variable rates since rates starting falling, they will soon reach a point where they wouldn't be expected to fall any further, so fixed rates will return to above the variable rate. At this time, consumers need to realise that fixing their rate is to guard against future rises and not to save money in the short term"
Stewart Noble, principal mortgage consultant, Australian Mortgage Brokers
"I would not recommend fixing interest rates in this environment; global circumstances are conducive to continued downward pressures"
Ken Sayer, managing director and CEO, Mortgage House
"As we expect rates to continue to fall and the longer-term economic environment is still somewhat uncertain, it will probably pay to hold off for a little while yet before deciding to fix. It will be worthwhile to monitor the market commentary and economic information closely in an attempt to be as informed as you possibly can be before making your decision. If we start to see fixed rates below 6% for three to five-year terms, we are looking at historically low fixed rates. That could be a trigger for some people to look at locking in – especially for investors who are looking for certainty around repayments and a minimal differential between rental returns and interest commitments"
David Johnston, director, Property Planning Australia
"Maintaining a variable interest rate on borrowed funds is the best course of action until at least the second quarter of 2009. However, rates and economic conditions should be monitored on a regular basis, with the view to reviewing your position and what will be best for individual circumstances. The wholesale funding for variable and fixed interest rates is different, and the banks place different risk criteria on each, so it would be prudent to monitor both variable and fixed rates over the coming months. Interest rates may get to historic lows again and, if they do, that would be the time to consider a fixed interest rate – if it's in line with the variable rate"
John Maher, director, Property Strategies Australia
"Most indicators (as at December 2008) point to further economy-stimulating interest rate cuts by the RBA, which lenders will pass on to remain competitive and/or gain market share. Borrowers can choose basic 'no frills' variable rate loans to take advantage of those attractive interest rates, unless they have the opportunity to lock in a really low fixed rate, in which case it becomes a no-loss situation. At some point, we’ll hit the bottom of the rates cycle and that is the time to fix for two to three years max"
Martin Castilla, franchisee with Smartline Personal Mortgage Adviser
"Longer-term fixed rates aren't coming down as quickly or as much as the variable and short-term fixed. However, if the fixed rates fall by another 1.25%, which would suggest a cost of funds at 3.25%, for borrowers with secure employment a fixed rate loan or a fixed/variable split may be a good option. There are lenders who allow unlimited principal reduction and redraw on fixed rate loans – these would be a good choice. The only risk is if the cost of funds falls further – which would see all-time historic lows – and a borrower is for some reason forced to break. In my opinion, there's more chance that in 12-18 months the cost of funds will start to increase"
Andrew Hunter, general manager, Peach Financials
"For most, it is still best to remain variable. When you believe the next RBA meeting happens with no decrease, only then start looking and thinking very carefully about fixed rates. The likely timing that people should start fixing is from May 09 unless there's a reasonable upward swing in the major world economies"
Jennifer Nielsen, CEO, Loan Market Group