Westpac Group cuts new customer rates in a bid to boost its home loan book

Westpac Group cuts new customer rates in a bid to boost its home loan book

Australia’s second largest bank, Westpac, has today cut its basic variable rate to 2.69 per cent, but the offer is solely reserved for new customers with a deposit of more than 30 per cent.

Westpac’s new rate is now the lowest variable home loan offered by a big four bank.

Westpac Flexi First Option Home Loan changes:

Loan to value ratio (LVR) Old rate New rate Difference
Less than 70% 2.93% 2.69% -0.24%
Above 70% 3.03% 2.79% -0.24%

Note: above rates are advertised rates for owner-occupiers paying principal and interest who are new customers to Westpac.

Westpac Group’s St George, Bank of Melbourne and BankSA also cut several new customer rates today including:

  • St George and Bank of Melbourne are now offering variable rates from 2.59% for new customers with a 60% LVR (0.10% cut).
  • BankSA is offering variable rates from 2.64% for new customers (0.10% cut).

The changes come as Westpac Group posted a drop in their home loan book, according to APRA’s monthly banking statistics for April 2020 (released May 29).

RateCity research director, Sally Tindall, said the cuts from Westpac weren’t unexpected.

“Yesterday Westpac had the highest basic variable rate out of the big four banks. Today it has the lowest,” she said.

“Today’s rate cut is designed to get new business in the door. Westpac Group’s home loan book has fallen month-on-month, according to the latest APRA statistics. They need new customers to keep moving in the right direction.

“While these rate cuts are reserved for new customers, if you’ve already got a loan with Westpac you can still pick up the phone and ask for a rate cut. If you’re paying more than what the bank is offering new customers for exactly the same loan, you’ve got the perfect bargaining chip.

Today’s rate cuts are further evidence of the competitiveness of the market.

“Increasingly banks are reserving their lowest rates for new customers who have a decent amount of equity up their sleeve,” she said.

“The three lowest variable rates on the RateCity database are reserved for owner occupiers, paying principal and interest who have at least 30 to 40 per cent deposit.

“If you’re an owner-occupier who has made decent headway into your loan and still has a steady job, you are in the drivers’ seat in this current market,” she said.

Lowest variable rates on RateCity

Lender Loan Advertised rate Loan to value ratio required
Reduce Home Loans Low Rider

2.29%

70%

Homestar Finance Star Gold

2.29%

60%

Freedom Lend Freedom Variable

2.29%

60%

Big Four Bank lowest rates

Lender Advertised variable Advertised

2-yr fixed

Advertised

3-yr fixed

CBA

2.79%

2.29%

2.29%

Westpac

2.69%

2.19%

2.19%

NAB

2.84%

2.29%

2.29%

ANZ

2.72%

2.29%

2.29%

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.

APRA monthly banking statistics - Loans to households: home loans

Bank % share of home loans among all ADI’s

(April 2020)

Monthly change in bank’s home loan book % (March to April 2020) Year on year change in home loan book % (April 19 - April 20)
CBA

25.70%

0.40%

4.74%

Westpac Group

23.19%

-0.31%

-0.64%

NAB

14.94%

0.19%

0.12%

ANZ Group

14.05%

0.27%

-1.09%

ING Bank (Australia)

2.93%

0.14%

5.02%

Macquarie Bank

2.77%

2.38%

33.03%

Bendigo and Adelaide Bank

2.52%

0.47%

8.30%

Suncorp-Metway

2.46%

-0.20%

0.16%

Bank of Queensland

1.61%

-1.73%

0.61%

HSBC Bank Australia

1.23%

1.23%

20.51%

Notes: Data is from APRA monthly banking statistics, released 29 May 2020 and includes all authorised deposit taking institutions (ADI's). Includes owner occupier and investor home loans. The percentage share of home loans does not include loans from non-ADI lenders.

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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.

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 is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

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.

What is a split home loan?

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 is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

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.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.