The Commonwealth Bank has followed Westpac in hiking mortgage rates shortly after the Reserve Bank dumped its yield curve target this week.
The three-year fixed home loan rates for owner-occupiers is now 40 basis points higher at 2.69 per cent at CBA, while the four-year fixed rate is up by 50 basis points to 2.89 per cent.
CBA lifted the five-year fixed mortgage rate 10 basis points to 3.09 per cent.
“These changes reflect the steep increase in funding costs over the past few weeks as well as upgraded economic forecasts. These changes are effective November 5, 2021,” a CBA spokesman said.
It follows Westpac’s rate hike last night and the RBA’s decision earlier this week to abandon its yield curve target after a sell-off that thrust the yield on the April 2024 bond several times higher than its target of 0.1 per cent.
But, ironically, CBA’s move followed a dramatic drop in bond rates overnight as the Bank of England deferred an expected rate increase
The three-year bond rate plunged 0.15 percentage points to 0.85 per cent while the swap rate fell to 1.15 per cent. These rates had reached as high as 1.2 per cent and 1.44 per cent last week.
Still, the swap rate – which more directly influences fixed-rate mortgages – was just 0.15 per cent at the start of the year and just 0.5 per cent at the end of September.
Three-year fixed-rate mortgages are heavily tied to market rates of that term because banks either borrow or hedge interest rate risk at those market-determined rates. The sharp rise in yields means banks must lift fixed rates for new borrowers to maintain the same margins.
Short-term yields had been rising sharply in Australia as traders bet that higher inflation would lead the Reserve Bank to abandon its yield curve control policy, which aimed to pin down the three-year rate to lower borrowing rates and provide comfort that it had no plans to lift rates.
On Tuesday, the Reserve Bank formally dropped the 0.1 per cent target on the April 2024 bond as that bond’s rate surged higher.
Some economists have tipped the central bank-controlled cash rate to rise in late 2022 – decried as “a complete overreaction” by governor Phillip Lowe on Tuesday – as expectations simmer for a speedier recovery from the pandemic than forecast.
Inflation also jumped higher than expected in the September quarter to 2.1 per cent, stepping into the RBA’s target window far earlier than expected.
Westpac on Thursday pushed its three-year fixed rate for owner-occupiers up by 21 basis points to 2.29 per cent; and the four-year and five-year fixed rates up by 10 basis points to 2.69 per cent and 2.99 per cent respectively.