Fixed-rate home loans head for new lows
Most big lenders have been battling it out on pricing on fixed loans, as part of efforts to draw more borrowers to their books. However, most of the action has been on three-year loans.
NAB, which is among the most aggressive in pricing variable rates, will cut 29 basis points from its five-year term to bring the rate to 5.55 per cent a year, effective Monday. This compares to Commonwealth Bank, which is pricing five-year loans at 5.69 per cent, while ANZ is the top of the market in the longer-term loans at 5.84 per cent.
Steve Mickenbecker, head of research product and strategy at Canstar, said the move was further evidence that banks were eager to lend while the housing market remained subdued and wholesale funding was easy to get.
"The banks desperately want to grow their loan books. It's a very competitive market and I'm sure that's what's driving NAB," he said.
Almost 30 per cent of borrowers who took out a new home loan in March chose a fixed-rate loan, says broker Australian Finance Group. This was the highest share of fixed-rate loans the broker had seen in the 10 years it has been compiling its mortgage index. NAB said a quarter of its current home loan applications are for fixed-rate loans.
Fixed-rate loans - which reflect market expectations on interest rates - have fallen below 5 per cent for two-year products, lower than during the financial crisis.
Mr Mickenbecker said the trend to cut fixed rates could indicate lenders were preparing to alter their variable rates.
"Three-year fixed rates are currently below 6 per cent. They've been below 6 per cent four times in the last 20 years and in each case, within quite short time, variable rates started to move up again."
Most economists expect the Reserve Bank to make at least one further cut to official interest rates this year. Such a move would take cash rates to 2.75 per cent.
Frequently Asked Questions about this Article…
NAB cut its five-year fixed mortgage rate by 29 basis points to 5.55% a year, a move the bank made effective on the Monday referenced in the article.
After NAB’s cut to 5.55% for five-year loans, Commonwealth Bank was pricing five-year loans at about 5.69% and ANZ at about 5.84%, putting NAB at the lower end of the longer-term fixed-rate market.
According to Canstar’s head of research, banks are cutting fixed rates as they compete to grow loan books while the housing market remains subdued and wholesale funding is easy to obtain, making the fixed-rate pricing battle more intense.
Yes — broker Australian Finance Group reported that almost 30% of borrowers taking out a new home loan in March chose a fixed-rate product, the highest share in the 10 years of its mortgage index, and NAB said about a quarter of its current applications are for fixed-rate loans.
Two-year fixed-rate home loans have fallen below 5% and three-year fixed rates are below 6%, with two-year levels lower than they were during the financial crisis, according to the article.
Canstar’s research head suggested the trend of cutting fixed rates might indicate lenders are preparing to alter variable rates; historically, when three-year fixed rates fell below 6%, variable rates have started to move up again within a relatively short time.
Most economists cited in the article expect the Reserve Bank to make at least one further cut to official interest rates this year, which would take the cash rate to about 2.75% — a development investors and borrowers watch closely because official cash rate moves influence broader mortgage pricing.
Keep in mind that fixed-rate mortgage pricing is highly competitive right now, with lenders like NAB cutting five-year rates and strong borrower interest in fixed products; also consider the historical link between low fixed rates and later variable-rate movement, and monitor RBA guidance and lender announcements before making decisions.
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