Ahead of the RBA’s decision next week banks have cut their home loan rates, despite growing sentiment that there will be no change to the official cash rate.
Following the decision of some major banks to drop interest rates smaller lenders have followed suit.
Bankwest, a subsidiary of Commonwealth Bank, has dropped interest rates on all fixed-rate home loans. Its Complete Fixed Home Loan Package now sits at 2.93% p.a. for three years, a cut of 1.25 percentage points (3.84% p.a. comparison rate).
Similarly, Bank Australia cut interest rates by 0.30 percentage points on its Basic Home Loan package, with the product now sitting at 2.95% p.a. (2.99% p.a. comparison rate).
These cuts follow rate drops from two of the big banks.
Earlier this month, ANZ dropped its Simplicity Plus Home Loan rate to a ‘special’ interest rate of 3.12% p.a. (3.16% p.a. comparison rate) for customers with an LVR of 80% or below (principal and interest).
Related: Buying a home? Here‘s what you need to know about loan-to-value ratio (LVR)
According to RateCity, Westpac also decreased rates. Westpac’s Flexi First Option currently sits at 3.28% p.a. (3.29% p.a. comparison rate).
With rate cuts typically coinciding with RBA decisions, Canstar Finance Expert, Steve Mickenbecker, believes the out-of-cycle cuts are a symptom of the current low-interest-rate environment.
“Competition is heating up in the home loan market with lenders jostling for market share, even in the face of low margins,” he said.
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Cash rate likely to hold
Despite reports that we would see a cash rate drop at the RBA’s first meeting of the year next week, newly released unemployment data from the ABS for December 2019 has sparked new notions that we are likely to see a hold.
With most economists predicting a rise in unemployment, the rate instead dropped by 0.1 percentage points to 5.1% (seasonally adjusted).
The Reserve Bank is due to make its decision on Tuesday.
Related: ABS data shows growth in housing lending
Savings accounts taking the hit
While home loan interest rate cuts might be good news for those paying off a mortgage or ready to invest, it comes at the detriment of customers heavily invested in savings accounts.
Following an October drop to the value of interest rates on savings accounts, this month the National Australia Bank (NAB) has chosen to again slash interest rates.
NAB cut its iSaver introductory rate by 0.15% to a maximum 4-month introductory rate of 1.55%. The account has a standard variable rate of 0.11% pa.
It also cut its NAB Reward Saver by 0.11% to 1.50% p.a. (provided conditions are met).
ANZ also cut rates on savings accounts.
The bank’s base rate on its Online Saver account has been slashed by 0.05 percentage points to 0.05% (with a bonus rate of 1.50%).
Term deposit rates have also been decreased by 0.05 – 0.10 percentage points.
According to RateCity Chief Executive Paul Marshall, savings account customers may have more luck moving away from the big banks.
“…Ardent savers can find competitive rates if they are willing to look beyond the big banks,” he told The Australian.
Despite this, smaller banks such as Citibank, ING, Bank of Queensland and MyState Bank have also been involved in the January rate cuts.
In spite of the downward interest rate movement, Jodi McKeown, Associate Director of ProSolution Private Clients, believes home loan savers who are looking to buy in the short-to-medium-term are still better off putting their money in savings accounts, rather than looking into shares.
“Buying and selling shares within that timeframe doesn’t make sense in most occasions. We would suggest to put the funds into an online savings account [or one of the smaller banks],” she said.
Steve Mickenbecker agrees, telling Domain:
“When saving for a home you have a time-frame in mind, let’s say it’s three years and you’re unlucky and 2.5 years in there is a significant downturn in the market…you could lose 20%” he said.
“I would never say [investing in shares is] gambling, but relying upon the timing starts to look like you’re talking a bit of a gamble with your savings.”
Words by Kathryn Lee
Sources:
- ABS Labour Force survey. Labour Force Commentary December 2019
- Canstar Finance Expert Steve Mickenbecker as quoted in Canstar Home loan rate wars: Banks cut interest rates “early” as co”petition “heats up” and Domain Saving for a house deposit? The best interest rates on savings accounts add up
- RateCity Chief Executive Paul Marshall as quoted in The Australian NAB reduces rates on some savings accounts just three months after last cut
- Associate Director of ProSolution Private Clients Jodi McKeown as quoted in Domain Saving for a house deposit? The best interest rates on savings accounts add up
Related: Open banking delayed ’til July 2020
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Things you should know: This editorial is opinion-based only, in preparing it we did not take into account your lending objectives, financial situation or particular needs. Before making a decision on the basis of this editorial, you should consider how appropriate it is to your particular lending needs, and objectives.
Terms and conditions, fees and charges, and normal lending criteria apply. Interest rate is correct as at last update. Interest rates to existing borrowers may vary to the advertised rate. Comparison rate based on a loan of $150,000 over 25 years. WARNING: This comparison rate is true only for the example or examples given and may not include all fees and charges. Different terms, fees and other loan amounts may result in a different comparison rate.
