Lenders Cut Fixed Rates

September 12th, 2014
The Reserve Bank of Australia has kept the official cash rate on hold once again, with rates sitting at 2.5 percent for the 12th consecutive meeting. This marks the longest period of steady rates since 2006, with many analysts expecting rates to hold well into 2015. Lenders across the country have reacted to recent RBA decisions by cutting rates on fixed loan products, including Commonwealth Bank, ANZ, and Westpac.

In August, Westpac lowered the rate of its three year fixed rate home loan by 5 basis points to 4.94 percent with a package discount. ; Commonwealth Bank made a 15 basis point cut to its popular three year fixed rate loan to match Westpac, while also dropping the rate of its four year fixed loan by five basis points to 5.09 percent.

NAB left their three year fixed rate loan unchanged at 4.94 percent, with ANZ matching the other big banks on their popular three year fixed products. ; A number of smaller lenders have gone even further than the big four, with ME Bank and Newcastle Permanent offering the lowest rates on a three year fixed loan at 4.59 percent according to comparison website Mozo.

The largest changes to a three year fixed loan came from B&E Personal Banking and Arab Bank, lowering rates by 40 basis points to 5.19 percent and 4.9 percent respectively. ; With so many lenders dropping rates in recent weeks, an increasing number of borrowers are choosing fixed home loan products. ; According to Mortgage Choice, almost 24.19 percent of mortgages written are now under fixed rates, up from 23.82 percent the previous month.

The uptake of fixed loan products varies a lot from state to state, however, with Queenslanders the most likely to opt for fixed products, at 29.85 percent. ; South Australia and New South Wales borrowers are also keen on fixed rate loans, at 25.83 percent and 25.30 percent respectively. ; Victoria’s demand for fixed rates was the lowest in the country at 16.70 percent, with levels in Western Australia also low at 19.06 percent.

According to Mortgage Choice spokesperson Jessica Darnbrough, “At the end of July, many of Australia’s lenders slashed the interest off their suite of fixed rate products – most notably their five year home loans... Whenever lenders cut their rates, we tend to see a lift in demand for that type of product a few months later.” ; This trend is likely to continue over the spring period, as lenders continue to offer historically low fixed rates and speculation grows regarding an official rate rise.

In the most recent RBA statement, governor Glenn Stevens said "the most prudent course is likely to be a period of stability in interest rates." ; However, economists all agree that the next move by the central bank will be a tightening of monetary policy, with estimates varying widely on just how long the RBA can sit on its hands. ; For example, economists from the Commonwealth Bank of Australia are predicting a rise as early as February 2015, with those from Bank of America Merrill Lynch saying interest rates are likely to hold until the first quarter of 2016.