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Lenders slash home loan rates ahead of predicted rate cut

Lenders slash home loan rates ahead of predicted rate cut

Lenders are slashing mortgage rates and lenders’ mortgage insurance (LMI) costs in the leadup to the widely predicted cash rate cut on October 6, but uncertainty is building over when the cut might happen. 

Eleven lenders, including Commonwealth Bank and ING, have taken the axe to rates across owner-occupier and investor home loans in the past seven days alone, while two lenders have offered LMI discounts to attract first home buyers. 

Online lender Pacific Mortgage Group today shaved its one-year fixed rate by 20 basis points to 1.99 per cent for owner-occupiers, making it the 12th lender to join the sub 2 per cent club. 

It also introduced a variable rate of 1.99 per cent for those with a 60 per cent loan-to-value ratio (LVR). 

CBA reduced its lowest variable rate by 10 basis points to 2.69 per cent last week, while Australia’s fifth biggest lender, ING, also lowered its variable rates for new customers who live in their own home by 10 basis points, with its lowest variable rate at 2.49 per cent. 

Illawarra Credit Union made the biggest cut in the past week of 1.65 percentage points to its variable owner-occupier rate, bringing it down to 2.59 per cent

Other players which have cut their mortgage rates include non-bank lender Homestar Finance, which trimmed their investor rates to a record-low of 2.18 per cent, and Tic Toc, which dropped their two-year fixed rate to 2.09 per cent.

The average cut across the board in the past week was 25 basis points, RateCity records found.

Fifty of the 57 mortgage rate cuts during that period were for variable rates

Westpac changes forecast, expects rate cut in November

The home loan rate cuts come as Westpac revised its forecast on the Reserve Bank of Australia (RBA) rate cut. The bank previously expected the RBA to lower the cash rate by 15 basis points to 0.10 per cent on October 6, the same day the federal budget will be handed down. Now, Westpac predicts the cut will happen when the central bank board meets on November 3.

The big four bank’s chief economist Bill Evans believed that the RBA may want to refrain from cutting the cash rate in its October meeting as it may not want to distract from the government’s federal budget announcement.

“A central bank moving on Budget Day could be interpreted by the government and the bank itself as diverting attention away from the budget and complicating the government’s task in ‘selling’ the budget,” he said.

“The governor himself, who has been such a strong proponent of fiscal policy, may also see the advantages of allowing space for the government to promote its budget.”

AMP Capital chief economist Shane Oliver has not changed his view that the RBA is likely to cut the cash rate on Budget Day.

“We continue to expect further easing by the RBA, probably at its October meeting so as to present a united ‘Team Australia’ front with the federal government, as it’s the same day as the budget,” he said.

Speculation around a potential rate cut began mounting after RBA deputy governor Guy Debelle mentioned the possibility of further reducing interest rates “a little more without going into negative territory” in an online speech last week.

Lenders turn to LMI offers for competitive edge

Lenders are looking beyond interest rate cuts to draw in new customers. 

ME Bank is giving 25 per cent LMI discounts to first home buyers with at least a 5 per cent deposit, effective today, though those with bigger deposits may access lower interest rates. 

“This offer will help address housing affordability and gives first home buyers a leg up at the perfect time,” ME home lending general manager Andrew Bartolo said. 

“With COVID-19 impacting house prices and many government grants and incentives available, now could be an ideal time for first home buyers to finally get into the market.” 

Meanwhile, Virgin Money has effectively axed its LMI charges for eligible borrowers, which include both first home buyers and those looking to upgrade their homes, with at least 15 per cent deposit. Home loan borrowers usually need to pay for LMI, which can cost thousands of dollars, if they have more than 80 per cent LVR.

While eligible customers will not need to pay for LMI, the insurance will still be applied to their home loans.

Lenders that cut mortgage rates September 21-28

LenderRate cut range (%)
CBA0.10 – 0.15
ING0.10
Australian Unity0.10 - 0.15
Firstmac0.30 – 0.60
People's Choice Credit Union0.20
Yard0.20
Illawarra Credit Union0.30 – 1.65
Tic Toc0.18
Virgin Money0.05 – 0.15
Homestar Finance0.03
Pacific Mortgage Group0.20

Source: RateCity.

Big Four Bank lowest rates

LenderAdvertised variableAdvertised

2-yr fixed

Advertised

3-yr fixed

CBA

2.69%

2.29%

2.29%

Westpac

2.19% for 2 years, then 2.69%

2.19%

2.19%

NAB

2.69%

2.19%

2.29%

ANZ

2.72%

2.29%

2.29%

Source: RateCity.com.au. Note: Rates are for owner occupiers paying principal and interest. *Westpac’s rates are for customers with a loan-to-value ratio of less than 70 per cent. Data accurate as of 28/09/2020.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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