Big four cut fixed rates, leave variable rate holders hanging
The Reserve Bank of Australia has cut interest rates to new record lows, reducing the cash rate from 0.25 per cent to just 0.1 per cent.
Mortgage holders can expect the rate to remain at this level for at least three years, giving borrowers (home or business) a sense of security as they look to re-establish economic strength post the COVID-19 pandemic.
The RBA has also lowered the bond rate to 0.1 per cent. Its quantitative easing measures consist of buying $100 billion worth of Australian government bonds over the next six months.
Quantitative easing is designed to lift inflation and encourage lending and investment. Over time, it should also lower the rate of unemployment, which RBA Governor Mr Philip Lowe says is likely to peak at 8 per cent and drop to 6 per cent by the end of 2022.
Lowering the interest rate, along with its quantitative easing measures, should fuel Australia’s recovery from the first recession the country has suffered in almost 30 years.
What do rate cuts mean for borrowers?
So far fixed interest rate borrowers will be the biggest winners.
Of the big four banks, Westpac and Commonwealth Bank have offered historic low rates to fixed interest mortgages and business loans, but are unlikely to pass any cuts on to variable rate holders.
This will be the second time in a row the Commonwealth Bank has failed to pass on rate cuts to variable home loan mortgagees.
Both Westpac and Commonwealth Bank have lowered fixed interest rates to 1.99 per cent on four-year mortgages for owner occupied customers.
This 1 per cent cut on its Wealth Package, is the Commonwealth Bank’s lowest ever advertised home loan rate.
The Commonwealth Bank’s 4-year Fixed Rate (Wealth Package) rates are now 1.99% p.a. (2.98% p.a. comparison rate), its two and three year rates are 2.14 per cent (3.84% p.a. comparison rate) and its one year rate is 2.19% p.a. (3.03% p.a. comparison rate).
Notably, the ‘CAN’ bank has also committed to holding off on evicting of struggling mortgage holders until at least September next year.
As for Westpac, its four year rate, as stated, is now 1.99 per cent (2.75% p.a. comparison rate) for its Premier Advantage Package and its one to three year Fixed rates on the same package move down by 0.20%.
NAB has undercut both banks.
As with Westpac and Commonwealth, NAB now offers its lowest ever fixed home loan rate, with rates starting from 1.98% per annum (comparison rate is unavailable at this time) for a four-year fixed term.
Changes come into effect on 10 November and again there is no relief for variable rate holders.
Owner occupiers on the NAB Choice Package paying principal and interest will now see rates of 2.19 per cent p.a. for one year, 2.09 per cent for two and three years p.a. and 1.98 per cent p.a. for four years.
“This is the sixth reduction in the cash rate during the past 18 months. With interest rates at record lows we are doing what we can to support homebuyers and business owners through COVID-19, while also balancing the impact on our deposit and savings customers,” NAB Group Executive Personal Banking Rachel Slade said.
ANZ was the last of the big four to move and it didn’t move nearly as far.
While the bank will make cuts – effective today – of up to 0.40 per cent across a range of fixed home loan product, it will not follow the other banks into moving below the magic 2.0 per cent.
The new ANZ rates will allow owner occupiers making principal and interest payments to move to rates of 2.29 per cent (comparison rates unavailable yet) over four and five year terms.
Those on one to three year terms will be able to access a rate of 2.09 per cent.
Again, there is no respite for variable rate customers, who will have to negotiate with the bank to reduce their rate.
What can variable rate holders do?
Variable rate holders may want to look elsewhere or try to force their bank’s hand.
RBA Governor Phillip Lowe has urged banks to pass on the cuts in full to all customers, however he believes some customers may have to negotiate a better deal.
“The best outcome would be for standard variable rates to be lower,” Mr Lowe said. “But if that doesn’t happen, I am confident there will be pass-through occurring through people negotiating switching… I would encourage everybody to go and ask their bank for a better deal… and if they don’t give it to you, switch to a bank that will.”
A cut to the standard variable rate would give borrowers with a $400,000 loan a saving of approximately $35 per month, or approximately $89 per month on a $1 million loan based on an average variable rate of 4.51 per cent
Of course, the big four banks aren’t the only choices home owners have.
Athena, Freedom Lend, homeloans.com.au and Reduce Home loans have already cut rates. In fact Reduce has cut its variable rate to 1.77 per cent (1.83% p.a. comp rate) as has Freedom lend 1.97% p.a. (1.97% p.a. comp rate).
So, the other big question now is to fix or not to fix?
There has never really been a better time to fix an interest rate, especially with the RBA saying rates will remain on hold for three years. Homeowner will have to weigh up whether they want the flexibility a variable rate brings, or the certainty of a set rate.
At this point in time, that’s a great question for owner occupiers to be asking.
Compare your home loan now with InfoChoice’s comprehensive list of variable and fixed interest mortgage products.