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Banks urged to cut interest rates

peterwhite fbaa ta

peterwhite fbaa ta
Reporter 3 minute read

The Finance Brokers Association of Australia has welcomed moves by several major banks to reduce fixed interest rates, calling on others to do the same.

The managing director of the Finance Brokers Association of Australia (FBAA) has applauded the Commonwealth Bank of Australia (CBA) and Westpac for reducing fixed interest rates for new borrowers and urged more to do the same.

On Monday (15 April), CBA announced rate cuts of up to 30 basis points across its owner-occupied and investment fixed rate home loan products.

Effective immediately for new customers paying principal and interest:

  • three and four-year fixed rates for owner-occupied loans have dropped by 10 basis points
  • five-year fixed rate for owner-occupied loans have decreased by 30 basis points
  • two, three and five-year fixed rate for investment loans have dropped by 10 basis points

The Commonwealth Bank’s principal and interest three-year fixed rate home loans now start from 3.79 per cent, with investment fixed rate home loans now starting from 3.99 per cent. 

Westpac also recently announced that reductions of up to 20 basis points for both new and existing customers.

Last Friday (12 April), the major bank decreased rates on its Fixed Option Home Loan and its Fixed Rate Investment Property Loan with principal and interest repayments.

For Fixed Option Home Loans with principal and interest repayments:

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  • three-year fixed rate will drop by 10 basis points to 3.79 per cent (4.89 per cent comparison rate)
  • four-year fixed rates will drop by 20 basis points to 4.09 per cent (4.92 per cent comparison rate)
  • five-year fixed rates will drop by 10 basis points to 4.09 per cent (4.87 per cent comparison rate)

For Fixed Rate Investment Property Loan with principal and interest repayments:

  • two-year fixed rates will drop by 6 basis points to 3.89 per cent (5.42 per cent comparison rate)
  • three-year fixed rates will drop by 20 basis points to 3.99 per cent (5.33 per cent comparison rate)
  • five-year fixed rates will drop by 10 basis points to 4.39 per cent (5.30 per cent comparison rate)  

FBAA managing director Peter White said the downward moves are not surprising given increasing competition from lenders who are more competitive across the loan products.

“Late last month, I called on banks to immediately cut interest rates as evidence increased that the next move by the Reserve Bank would be down. In March, there was a sharp decline in short-term bank funding rates and the smaller banks were already revising down.”

The head of the FBAA said that the moves by CBA and Westpac put them ahead of the other majors for owner-occupiers and investors, and improved their rates when compared to some smaller lenders, too.

Mr White noted that around 40 lenders have dropped rates since the start of 2019, adding: “The decisions are interesting because they put pressure on the other major banks to at least match them or risk losing more market share. That’s exactly why Westpac moved... after the CBA.”

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Despite the out-of-cycle rate changes, the Reserve Bank of Australia (RBA) earlier this month held the official cash rate at 1.5 per cent.

However, some analysts, including AMP chief economist Shane Oliver and NAB chief economist, market, Ivan Colhoun, expect the RBA to drop the cash rate over the coming months, in response to weak housing market conditions and subdued wage growth.

Mr White agreed, adding that there are many mixed signals in the finance sector at the moment, but there is growing speculation that there may be at least one, or possibly two, interest rate reductions by the Reserve Bank this year.

“Consumers will be keeping a close eye on the big banks when the official rates do go down. I expect the banks won’t pass on the rate cuts in full and that will lead to more confusion for borrowers trying to get the best deal,” he said.

Mr White concluded by emphasising that nearly 60 per cent of borrowers currently source their home loans through brokers rather than going direct to lenders.

“There are very good reasons for that. The [banking] royal commission blasted the banks for their culture of greed and lack of transparency.

“Brokers have a large number of loan providers to choose from, and they find the right deal to suit the individual circumstances of each consumer,” he said.

[Related: Fixed mortgage rate cuts continue]

Banks urged to cut interest rates
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