Australia’s big banks have rolled up their sleeves and slashed fixed interest rates in a bid to steal back market share as borrowers flock to smaller banks and lenders – looking for a better deal.
On Wednesday, three of Australia’s big four banks – Commonwealth Bank, NAB and Westpac – dropped some of their fixed interest rates, including their 5-year fixed rates to 4.99 percent* – out of cycle with the Reserve Bank’s cash rate announcement. ANZ has since reduced its five-year fixed home loan rate down 0.30 percentage points to 5.49 percent*.
The move comes as new research from RateCity reveals that the major banks collectively lost share of the home loan market in the past year.
In the 12 months to May, 2014, the major banks dropped 0.37 percent market share to smaller players.
“The latest salvo in the competition war, this is the first time we’ve seen the big banks move rates under the 5 percent mark for five-year fixed term home loans,” Alex Parsons, CEO of Ratecity.com.au, said.
“While there has been plenty of action as low as 3.99 percent on one- and two-year terms, the five year category has not historically seen this level of competition.”
The major banks currently hold 84.6 percent of the Australian home loan market – a formidable figure for the smaller lenders but one that has seen a decline as Australians ditch one-bank-loyalties, choosing instead to seek out lenders offering the most competitive rates.
“With the scare of the GFC behind us, people are feeling more confident shopping around outside of the big 4,” Parsons said.
“People are getting smarter with their money and, as cost of living pressures bite, realising that paying a higher rate is a waste of money.
“This latest round of rate cutting is evidence that the majors are starting to feel the pinch of the shift in the market and are having to meet the market. The real winners from this competition will be consumers who will be able to materially reduce their costs of borrowing if they understand and compare the different offerings in the market.”
So what do these fixed rate drops mean for Australian mortgage holders? RateCity did the calculation, which shows that moving from the average variable rate to a 5 year fixed rate at 4.99 percent could save borrowers $51 per month on a $300,000, or $3060 over the course of five years, excluding fees and charges.
*Includes package discount.