Kathryn Lee - 24 Sep, 2019

The interest rate war: what it means to consumers

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Interest rates are at a record low and lenders want your business. After recent cuts to the cash rate, banks have been steadily lowering their interest rates, some offering the lowest rates ever recorded.

The battle of the lenders

Record low interest rates

Lenders are battling for your business, and many banks are reaching record lows for their home loan interest rates. According to the RBA, the average variable home loan rate of 4.94% is the lowest they have ever recorded, with their records extending back to 1960.

Over the past few weeks, Westpac Group subsidiaries have been leading the charge in rate cuts. Bank of South Australia has dropped interest rates to below 3% on a range of their fixed-rate home loans. By the same token, Bank of Melbourne and St George have also made cuts of up to 135 basis points of some packages.

Early this month, Westpac also dropped their rates by up to 130 basis points, with some products now having the lowest rates seen since records began almost 50 years ago.

Early this month, Westpac also dropped their rates by up to 130 basis points, with some products now having the lowest rates seen since records began almost 50 years ago.

Since the cash rate cut over the June and July period, all the major banks have slashed interest rates. After the RBA’s first cut in June, NAB passed on the full cut of 25 basis points to all variable rate home loans; leading to the bank’s lowest standard variable rates in over 40 years. After the July decrease, it then passed on a cut of 19 basis points. Commonwealth Bank and ANZ Bank also saw rates decrease for their variable products by at least 0.43% p.a. over the period.

How can consumers take advantage of low interest rates?

Spring property season
Traditionally, spring and summer are the busiest times to buy property. If you’re in the market to buy, take advantage of the busy market and the current low interest rates and score yourself your dream property.

Get ahead on repayments
If you’re struggling financially and on a variable interest rate, such times of low interest rates are a great way to get ahead on loan repayments. By keeping up with your usual payments in times of lower interest rates, you’ll be able to make a bigger dent in paying off your mortgage.

Alternatively, you might find it worthwhile to use your weekly savings to invest in something you wouldn’t have been able to do otherwise.

Just remember, interest rates won’t be low forever so take advantage while you can.

In the current low interest rate climate, those on fixed-rate loans might find it beneficial to refinance their home loan. While it won’t be a good fit for everyone, if you are paying an interest rate that is significantly higher than what’s on offer right now, it might be worth doing the math and seeing if refinancing could help you save money.

Why are we seeing such low interest rates?

Recent cuts to the official cash rate

During its meeting this month, the RBA decided to leave the official cash rate on hold at 1.0% – the lowest rate in history. This came after their decision to cut the rate in both June and July, lowering the rate by 0.50 basis points over the period.

Will interest rates stay low?

Future cash rate cuts predicted

Financial experts predict that interest rates are destined to stay low for the foreseeable future and many of the major banks are predicting another cut to the cash rate in upcoming days. Citi Bank, NAB, Commonwealth Bank, Westpac and ANZ all think that there will be a drop on October 1.

Words by Kathryn Lee

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