National Australia Bank is hoping to take advantage of a rise in fixed-rate home loans as it cuts its five-year mortgage rate to 20-year 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.