The Commonwealth Bank of Australia has hiked its three-year fixed home loan rate by 0.05 per cent signalling to the market that Australians may soon see the end of the ultra-low fixed rates.

The country’s largest bank has now increased its three-year fixed rate to 2.19 per cent for owner occupiers. In March, CBA increased its four-year fixed rate by 0.05 per cent to 2.24 per cent.

CBA now has only one rate under two per cent, the two-year fixed rate at 1.94 per cent.

RateCity research director Sally Tindall said CBA was the first major bank to increase its three-year fixed rate.

“The rate hikes might be small, but they point to a fixed rate market that’s starting to rise,” she said.

When CBA increased its four-year fixed rate in March, other lenders followed suit, bumping up their fixed rate home loans.

“We expect the same thing will happen with three-year rates in coming months,” Ms Tindall said.

The rise in three-and-four-year fixed home rates has propelled more borrowers to turn to two-year fixed rate home loans which are now lower.

The share of fixed rate lending is also rising with half of all owner-occupier lending at fixed rates and 45 per cent of investor lending also opting for fixed rates.

Traditionally, only 15 per cent of mortgage lending was in fixed rates.

Ms Tindall added that banks are anticipating a rise in the cost of funding over the next few years with the next cash rate hike expected in 2024, if not earlier.

When the pandemic hit last year, the Reserve Bank of Australia cut its official cash rate which is at a historic low rate of 0.1 per cent to help cushion the economy from the havoc wreaked by COVID-19.

The RBA emphasised that it will not lift official rates until inflation reaches its two to three per cent target and the labour market would have to tighten considerably. This is unlikely to happen until 2024 at the earliest.

Pin It on Pinterest