The banks are making a last-minute dash to spend up on the $200 billion emergency money the RBA made available for them in the crisis and that will push up fixed-rate mortgages.

But you could still be better off in a fixed-rate loan despite such increases because they are significantly cheaper than the average variable rate loan.

“Fixed-rate loans have been the battleground in recent times and they will still be attractive even after small rises like those seen recently,” said Steve Mickenbecker, group executive with research group Canstar.

Source: Canstar

At the moment there are 179 housing loans out there with interest rates of below 2 per cent,” Mr Mickenbecker said. “I’d say 90 per cent of those would be fixed rate.”

Just three weeks ago $100 billion of that $200 billion made available to the banks under the Term Funding Facility (TFF) was unspent.

But assistant RBA governor Christopher Kent said in a speech on Wednesday that now only $64 billion remained and “we expect the bulk of available funding will be taken up” in the remaining window to its expiry date of June 30.

You need to move

That means if you are thinking about a fixed-rate mortgage at rock-bottom prices, now it the time to act. The reason is simple.

The TFF provides three-year loans to the bank at the rock-bottom rate of 0.1 per cent which they can on-lend to home buyers more cheaply than if they had to borrow it on the open market.

As the chart above shows, the TFF money the banks are borrowing will have to be replaced by other funding sources, like offshore loans, for which they can expect to pay at least 0.5 per cent.

The banks are already repositioning themselves for that reality.

In the past few weeks “both CBA and Westpac have increased their two- and three-year fixed lending rates,” Mr Mickenbecker said.

And while ANZ and NAB are yet to follow, IBG, AMP and seven other smaller lenders have.

CBA upped rates 0.05 per cent, or five basis points, pushing three-year fixed loans to 2.19 per cent and four-year loans to 2.25 per cent.

Westpac moved up 0.1 per cent, resetting two-year rates at 1.99 per cent and its three-year loan about the same.

It’s the environment

There are other factors at play pushing up fixed-rate loans beside the TFF.

“It partly reflects the TFF, but more generally it reflects the reality that as we move through time we get closer to when the RBA will start to tighten policy,” said Sarah Hunter, chief economist with BIS Oxford Economics.

The RBA has said it expects to raise rates from 2024.

“Even the two-year rate is starting to drift up, so that tells you in two years’ time or thereabouts financial markets expect the RBA to start lifting the cash rate,” Dr Hunter said.

There will be further moves in the fixed-rate mortgage market, but those moves will not be too dramatic, Mr Mickenbecker said.

“It’s still a very benign funding environment for the banks, even without TFF,” he said.

“I don’t think you could say that the 10 basis points moves in fixed rates are totally a result of the coming end of TFF – it’s only part of the mix – maybe a couple of basis points.”

Low is still low

So while all the banks are likely to move fixed-rate loans by similar levels to ANZ and NAB’s 10 basis points “I don’t think we’ll see fixed rates move beyond that for a while,” Mr Mickenbecker said.

Therefore the fear of missing out shouldn’t be the major driver.

“If it goes up 10 basis points and you lock in rates 10 basis points above some of the lowest interest rates we’ve had in a long, long while, you’re still getting a pretty nice rate,” Mr Mickenbecker said.

“I don’t think there is any need to panic.”

The rises in fixed rates are unlikely to flow through to flexible rate loans in the short to medium term because they are funded from different sources, Dr Hunter said.

Canstar research on different loan types.

“The winding up of TFF shouldn’t have any impact on variable rates because they are driven by very short-term rates and the RBA has said it won’t be raising the cash rate any time soon,” she said.

“The standard variable rates are funded by the 90-day bank bill swap rate and so those rates are only looking forward three months.”

So while variable rates are likely to stay at current levels, at first blush they’re still less attractive than fixed-rate loans.

“There are a few things to consider with fixed-rate loans,” Mr Mickenbecker said.

“When the loan term expires a lot of banks will roll you over into their standard variable rate, which is higher than other deals you could get. So you don’t want to be lazy when the loan finishes or you could finish off paying more.

“You have to make a choice about how long you are going to go for. If you go for a shorter period you may find yourself wishing you had stayed longer when you roll over into a higher rate variable loan.”

And remember, while non-banks only have about 5 per cent of the mortgage market, they can give you the best deal because they don’t have all the expensive infrastructure like big banks do.

The Canstar chart above shows that non-banks can give you a variable mortgage rate with a 2 in front of it while with the bigger banks it’s a 3.