Lenders face off on out-of-cycle rate cuts

Lenders across Australia have begun 'slashing' variable and fixed home loan rates in a 'desperate' bid to attract buyers



Lenders are facing off by slashing both variable and fixed loan rates out-of-cycle, according to financial comparison websites RateCity and Mozo.

RateCity says BMC Mortgage was the first to cut some of its variable home loan rates out-of-cycle, dropping by 10 basis points on Monday.

RAMS Home Loans and Newcastle Permanent were the latest to reach below 5% with their one-year and 2-year fixed rates respectively, according to RateCity’s database of more than 100 lenders.

Similarly, Westpac have cut their fixed rates to 4.99% on a 2 year package, their lowest level since April 2009.

Mozo says the move is sparking an ‘all-out war’ amongst the banks, with St.George, ANZ, Commonwealth Bank and RAMS all introducing cuts to their fixed interest rate packages.

The latest rate cuts follow the dismal lending market results in December, released earlier this week by the Australian Bureau of statistics (ABS). There were 43,885 home loans financed across Australia in December 2012 - 10% down on December, 2011.

#pb# NSW saw the biggest hit with 24% fewer home loans written in December, 2012 (12,135) compared with December, 2011 (16,054). WA was the only state to see an increase, with 3% more in December, 2012 (6536) than December, 2011 (6318).

Michelle Hutchison, spokesperson for RateCity, says the slow lending market is changing the way lenders compete for customers.

“We’ve never seen lenders cut variable rates while the Reserve Bank cash rate is on hold. Lenders are obviously feeling the pressure of the slow mortgage market and are doing whatever it takes to attract new customers, including cutting their interest rates out-of-cycle.

Fixed rates have been falling since mid-2011 and average fixed home loan rates are at their lowest levels ever recorded, according to RateCity.

For instance, average four-year fixed rates fell by 190 basis points since mid-2011, while average standard variable rates fell by 133 basis points.

Hutchison says, while it’s likely that more lenders will cut rates out-of-cycle, there are good value fixed home loans for borrowers that want to fix.

“If borrowers don’t return to the mortgage market we expect more lenders to follow with rate cuts this year. But with fixed rates at unusually low levels, it’s a good time to consider fixing your mortgage if you’re planning for changes to your financial situation in the coming years. Borrowers need to ask themselves, ‘can you afford a 2-3% interest rate rise? Are you planning to go away for a long period of time or start a family? Or will you undertake extensive renovations’?”

Even if rates fall further, Hutchison says they will eventually start rising - so borrowers need to think about the future and consider their options while lenders are ‘desperate’ for their business.

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