RBA cut rumours swirl as banks slash variable rates

Speculation is mounting around the prospects of further reductions in the official cash rate by the Reserve Bank of Australia, with some of Australia’s biggest banks slashing variable home loan rates.

Westpac was the first to move, after it launched a 2.19 per cent introductory variable rate last week, with the rate to revert to a 2.69 per cent after two years.

The Commonwealth Bank of Australia followed Westpac’s lead, cutting rates on its ‘Extra Home Loans’ cut by 0.1 per cent for owner occupiers and 0.15 per cent for investors.

CBA’s lowest variable rate on offer is now 2.69 per cent.

Australia’s fifth-largest lender, ING, aslo cut its variable rates for new owner-occupier customers by 0.1 per cent, taking its lowest variable rate to 2.49 per cent.

Analysis from RateCity.com.au shows 47 lenders have cut variable rates in the last two months for new customers, while 34 lenders cut fixed rates over the same period.

The lowest variable rate on offer is 1.89 per cent through boutique lender Reduce Home Loans, but it requires a loan to value ratio of 60 per cent.

Ratecity.com.au research director Sally Tindall said a cash rate cut by the RBA seemed “increasingly likely” in the next few months.

“While a cash rate cut next month is on the cards, the board may want to wait until the federal budget is out of the way,” she said.

“Home loan rates might be at record lows, but it’s unlikely we’ve hit the bottom just yet.

“The cuts by CBA and Westpac will force the rest of the home loan market to re-evaluate their pricing. As a result, we’re likely to see some lenders cut their new customer rates further.”

However, Ms Tindall said while competition in the market would allow refinancers to get a better deal, it does nothing for those trying to save for a deposit.

“Complacent mortgage holders and savers are not benefitting from these cuts,” she said.

“Savings rates have been tumbling in recent months and if the RBA cuts again we’ll see even more accounts offer next to zero interest to Aussies trying to get ahead.”

Canstar group executive, financial services Steve Mickenbecker said borrowers considering refinancing would be well served to consider a ‘no frills’ loan, such as the CBA’s Extra Home Loan offer.

Mr Mickenbecker said borrowers with a variable rate loan with an offset account would pay $81 more each month on a $400,000 loan over 30 years than a borrower with a no frills loan.

“Getting ahead of your home loan repayment schedule works to recession proof your finances and helps build long term wealth.”  

“When no frills loans first hit the market, they came with the drawback that you could not make extra repayments to get ahead. Nowadays you can make the extra repayments and if you need to you can redraw your money. 

“Most no frills loans do not have offset accounts, but for homeowners redraw is a close substitute for offset, and the subtle difference might not warrant a big interest rate differential.”