Commonwealth Bank (CBA) has made its long-awaited entry into Australia’s ongoing interest rate price war, slashing their two-year fixed rate by 20 points to 1.94%.
That places them below the 2% marker for the first time in the history of Australia’s biggest bank, signalling just how low interest rates have gone in the last year. According to CBA, it is the lowest advertised rate they have ever offered for a home loan.
The race to the bottom was sparked by Westpac, who dropped their rate to 1.79% last week. They were followed by NAB, who also broke 2% by reducing their two-year fixed home loan rate at 1.89%.
Within the Big Four, only ANZ is yet to follow suit, though the pressure is now on for them to make a move. In the non-bank space, Homestar Finance made the news last week by offering as low as 1.74%, the current lowest rate to be found anywhere in Australia.
On the other hand, CBA raised their four-year interest rate, pushing it up 20 points to 2.34%. This is thought to be a reaction to the ongoing insistence from the Reserve Bank of Australia that they will not raise the cash rate, which at 0.01% is at a record low, until 2024 at the earliest.
In CBA’s wider rate cut, they actually raised their 4-year rate, which signals that they think that the RBA will stick to their plan of not raising the cash rate until 2023, but most experts seem to think that they will be forced to bring their plans forward.
“Low interest rates have also been attributed as the main reason for recent house price increases,” said Adrian Kelly, CEO of the Real Estate Institute of Australia (REIA). “It’s not only buyers that have increased purchasing power but all mortgage holders who have seen interest rates go down are seeing their equity increase as more of their repayment goes to eroding the mortgage principal rather than interest.”
“We recommend that anyone either in the property market or thinking about it get into to speak with their bank or mortgage broker to ensure you are not paying unnecessary extra costs on your mortgage.”
“The RBA has maintained its policy that cash rates will not increase until 2023 – unless Australian wages rise, inflation reaches the RBAs target zone and unemployment declines. We have no crystal ball but will continue to monitor the activities of our central bank and what it means for agencies and property customers.
“Whilst interest rates may well stay unchanged this does not prohibit APRA from placing some “speed bumps” on banks’ lending. It has done this before and there is speculation that it may again.”