National Australia Bank is hoping to take advantage of a surge in fixed-rate home loans as it cuts its five-year mortgage rate to a 20-year low.
The move comes as 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 per annum, effective Monday. Commonwealth Bank 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, according to 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 were for fixed-rate loans, which reflect market expectations on interest rates and have fallen below 5 per cent for two-year products.
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 a short time, variable rates started to move up again."
The drop in pricing on fixed rates coincides with Australian bank funding costs falling to the lowest level since the global financial crisis. At the same time, banks are rolling over high-cost three and five-year funding, locked in during the depths of the global financial crisis, at cheaper rates.
Most economists expect the Reserve Bank to make at least one further cut to official interest rates this year.