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

Lender Rate cut range (%)
CBA 0.10 – 0.15
ING 0.10
Australian Unity 0.10 - 0.15
Firstmac 0.30 – 0.60
People's Choice Credit Union 0.20
Yard 0.20
Illawarra Credit Union 0.30 – 1.65
Tic Toc 0.18
Virgin Money 0.05 – 0.15
Homestar Finance 0.03
Pacific Mortgage Group 0.20

Source: RateCity.

Big Four Bank lowest rates

Lender Advertised variable Advertised

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.

Did you find this helpful? Why not share this news?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about home loans

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

How long does Bankwest take to approve home loans?

Full approval for a home loan usually involves a property valuation, which, Bankwest suggests, can take “a week or two”. As a result, getting your home loan approved may take longer. However, you may get full approval within this time if you applied for and received conditional approval, sometimes called a pre-approval, from Bankwest before finalising the home you want to buy.  

Another way of speeding up approvals can be by completing, signing, and submitting your home loan application digitally. Essentially, you give the bank or your mortgage broker a copy of your home’s sale contract and then complete the rest of the steps online. Bankwest has claimed this cuts the approval time to less than four days, although this may only happen if your income and credit history can be verified easily, or if your home’s valuation doesn’t take time.

Why should I get an ING home loan pre-approval?

When you apply for an ING home loan pre-approval, you might be required to provide proof of employment and income, savings, as well as details on any on-going debts. The lender could also make a credit enquiry against your name. If you’re pre-approved, you will know how much money ING is willing to lend you. 

Please note, however, that a pre-approval is nothing more than an idea of your ability to borrow funds and is not the final approval. You should receive the home loan approval  only after finalising the property and submitting a formal loan application to the lender, ING. Additionally, a pre-approval does not stay valid indefinitely, since your financial circumstances and the home loan market could change overnight.

 

 

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

Can I get a NAB home loan on casual employment?

While many lenders consider casual employees as high-risk borrowers because of their fluctuating incomes, there are a few specialist lenders, such as NAB, which may provide home loans to individuals employed on a casual basis. A NAB home loan for casual employment is essentially a low doc home loan specifically designed to help casually employed individuals who may be unable to provide standard financial documents. However, since such loans are deemed high risk compared to regular home loans, you could be charged higher rates and receive lower maximum LVRs (Loan to Value Ratio, which is the loan amount you can borrow against the value of the property).

While applying for a home loan as a casual employee, you will likely be asked to demonstrate that you've been working steadily and might need to provide group certificates for the last two years. It is at the lender’s discretion to pick either of the two group certificates and consider that to be your income. If you’ve not had the same job for several years, providing proof of income could be a bit of a challenge for you. In this scenario, some lenders may rely on your year to date (YTD) income, and instead calculate your yearly income from that.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

What is the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

Variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

How much deposit will I need to buy a house?

A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.

While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.