The RBA announced its Term Funding Facility last year to reduce the funding cost problem across the economy.
The funding facility aimed at providing cheap funds, and this was leveraged well by lender banks.
Lender banks, because of the cheap funds, were able to attract new borrowers as it helped reduce their interest rates significantly.
Since the beginning of the year, banks have sped up the home loan process, anticipating the end of the Term Funding Facility.
As a result, two-years fixed rate home loans under 2 per cent have more than doubled. And three-years fixed rate home loans have almost doubled. Moreover, it has led to a significant increase in borrowings for home loans.
Now, with RBA ending the cheap funding facility by the end of June and with $190 billion of the funds still accessed, banks are rushing to draw those funds.
They have already accessed $97.9 billion of the remaining funds so far. For lender banks to use all the remaining funds, they must draw $10 billion every week for the remaining two months.
Banks are keeping their two and three-year fixed rate cheap and pushing home loans for the same.
The cheap rates are powering the property boom in Australia. Those who cannot afford the expensive properties now take home loans at the most affordable rates available.
The increase in borrowing for home loans has even increased the property market’s demand side. Thus, with the supply-side remaining the same and demand increasing, the property boom has grown even stronger. A majority of this boom can be attributed to RBA’s decision of ending this Term Funding Facility.
Meanwhile, for a higher number of years in fixed-rate home loans, lender banks have started to make the rates expensive.
Keeping their long-term fixed rates expensive indicates their anticipation of having to source funds at costly rates in future. While this, in no doubt, is a strategic move, an implication could be an increased refinancing once the fixed period is over.
So, to keep the borrowers from refinancing with other banks, some lenders are trying to lock in wholesale funds from overseas to keep their rates cheap.
For now, the interest rates are kept the cheapest for the three-year fixed loan term, and so lender banks are pushing it aggressively.
What this means for borrowers
The lender banks are speeding up on getting cheaper fixed rate home loans settled. It is likely they play safe with the applications and reject complicated cases directly.
In such a case, having a mortgage broker who can ensure your application is good enough, is essential. And in case your case is intricate, the broker can work out loopholes and solutions for your case.
Also, brokers directly liaise with the business development managers of lender banks. So, they can get your loan approved by convincing them to take a common-sense approach for your case.