Home loans fall to less than 3 per cent and more to come

Mike Bruce
May 31, 2019, updated Jun 01, 2019

Cash-based economies might hoard, rather than spend, in response to sub-zero interest rates. Photo: Getty

Australian home owners are enjoying a mortgage bonanza with home-loan rate cuts coming thick and fast.

According to comparison site Ratecity.com.au, 50 lenders have cut rates over the past two months, predominantly on fixed-rate mortgages, but also on some variable home loans.

And one major investment bank predicts that we haven’t seen the end of it yet, with four cash rate cuts to come over the next year.

Customer-owned Greater Bank on Friday cut its one-year fixed home loan rates by 0.50 percentage points to 2.99 per cent. That makes it the first bank to go below 3 per cent, only days before the June meeting of the Reserve Bank which is considered almost certain to cut the cash rate to the historic low of 1.25 per cent.

Greater Bank dropped its other rates too, cutting its two-year fixed rate to 3.39 per cent, and both the four- and five-year fixed rates to 3.64 per cent.

Financial comparison site Canstar said Greater Bank’s move set a new record for the lowest home loan rate has ever had its 26-year-old database, and follows moves this week by major players Bank of Queensland (3.44 per cent), ING (3.63 per cent), NAB (3.49 per cent) and Mortgage House (3.49 per cent) to cut rates on selected products over the past week.

“The fact that NAB, a big four bank, is offering one of the lowest fixed rates in Australia is a sign of the times,” Ratecity.com.au research director Sally Tindall said.

“The big banks are now playing in the low cost loan space in a bid for new customers and they aren’t taking a backwards step.”

Check out the fixed rates here

Ms Tindall said some banks were even cutting their variable rates, including ING, Mortgage House and Macquarie Bank.

And mortgage-holders with variable rate loans could also expect a bonus next week, with the markets banking on a more-than-90-per-cent chance of the RBA cutting the cash rate by 25 basis points when it meets on Tuesday.

But that is assuming the banks will pass on the rate cut to customers.

Canstar group executive of financial services Steve Mickenbecker told The New Daily he expected banks would pass on the cut to exisiting clients on standard variable rates. But they may not pass on the full cut to customers who have taken up special introductory deals, offered by banks who had pre-empted the future drops in interest rates.

“People on standard variable loans I believe will get the full 0.25 per cent, but perhaps not those people who have come in to the market on special deals,” Mr Mickenbecker said.

Ms Tindall said intense competition, combined with a significant slow-down in home lending and lower costs of funding, the odds were more in favour of the banks passing on the rate cut in full.

“In 2018 the majority of banks hiked rates out of cycle due to their [higher] cost of funding, but they don’t have that pressure any longer. Today their profit is being squeezed by that slowdown in lending.

“And if they don’t pass it [the rate cut] on in full they will certainly have to explain that to their customers.”

Meanwhile, investment bank JP Morgan has predicted the RBA will not only cut interest rates by 0.25 basis points on Tuesday, but cut another three times by middle of next year.

The forecast by chief economist Sally Auld, senior economist Ben Jarman and fixed income strategist Tom Kennedy is the boldest yet for rate cuts.

Most banks have predicted the RBA will cut rates by 50 basis points by mid-2020, with Westpac economist Bill Evans on Friday predicting they could would reach 0.75 per cent by the end of the year.

But Ms Auld, Mr Jarman and Mr Kennedy went even further, saying that inflation has fallen, global growth has deteriorated and there’s a chance the US could cut rates.

“Envisage a scenario in which the Fed is cutting in response to weaker growth; in such circumstances the RBA is unlikely to stop at 50 basis points of easing,” they wrote.

“Our sense is that the combination of global headwinds, and the RBA having slipped behind the curve, could therefore be decisive in bringing four cuts, rather than three.”

The RBA has kept interest rates on hold at 1.5 per cent for a record 30 consecutive meetings but is expected to cut this Tuesday following sobering growth forecasts.

-with AAP