The home loan market is becoming increasingly competitive in April, with 32 lenders, including major banks ANZ and NAB, reducing interest rates in response to the Reserve Bank of Australia (RBA) changing tactics. National Australia Bank (NAB) recently cut fixed rates for new owner-occupied borrowers by up to 0.5 percent and even further for new investment borrowers with a fall of up to 0.6 percent.
Canstar Group executive financial services, Steve Mickenbecker, said that these rate cuts indicate that the market is expecting lower variable rates in the future, although the timing of such rate cuts is not certain. The reduction in fixed rates is due to the decline in Australian government bond yields and the NAB’s recent cut to its three year home loan fixed rate matches the fall in the three bond yield. The bank bill swap rate is a more accurate indicator of variable home loan rates and has only moved down around 0.05 percent since the start of March. Additionally, the cuts to fixed rates may be the beginning of a reduction of the 0.25 percent premium investors have been paying since the Australian Prudential Regulation Authority (APRA) applied the brakes a few years ago.
According to RateCity.com.au’s research director, Sally Tindall, many borrowers are hesitant to commit to fixed rates, especially those in the mid 5s. She expects banks to continue to cut fixed rates over the next couple of months, with Westpac being the next in line. The Australian Bureau of Statistics Lending Indicators for February show that fixed rates only made up 5.4 percent of new loans, a dramatic drop from 28.1 percent from the same time last year. Steve Mickenbecker noted that while the RBA may cut variable rates in the near future, it could also increase rates if necessary. He advises borrowers to fix their rates now to prevent further increases in the short term.
The RBA board will meet Tuesday for its May monetary policy meeting. In conclusion, competition in the home loan market is growing in April as banks reduce interest rates in response to changes in the RBA’s stance. Fixed rates have been reduced due to the decline in Australian government bond yields, while variable rates are more closely aligned with the bank bill swap rate which has only moved down around 0.05 percent since the start of March. Borrowers are hesitant to commit to fixed rates, although experts advise them to do so to prevent further rate increases.
The RBA board will meet Tomorrow for its May monetary policy meeting.