Competition drives home loan rates down

Competition has been intense in the residential mortgage market. Variable home loan rates continue to fall and refinancing of loans has hit a record high as locked down Australians go mortgage shopping. According to an analysis from RateCity.com.au, 27 lenders have cut at least one variable rate in the past month. This is despite the Reserve Bank of Australia (RBA) keeping the cash rate on hold for almost 12 months and no move expected until at least 2024.

The analysis shows that while the majority of rates under 2 per cent are fixed, there are now 48 variable home loan rates also under 2 per cent. RateCity.com.au research director, Sally Tindall, says most cuts in the past month were to variable rates.

“Banks largely left fixed rates alone last month, opting for a ‘wait and see’ approach as they work out what impact Australia’s COVID-19 recovery plan will have on the economy,” she says.

“However, this hasn’t stopped many lenders from taking the scissors to their more malleable variable rates, which were lagging well behind fixed rates.”

When the RBA cut the cash rate last November there were just six variable rates under 2 per cent. Today there are 48, including five investor rates.

Tindall says: “After the last two cash rate cuts, variable rates barely moved as most lenders opted to drop fixed rates instead. If anything, these cuts are overdue.”

She notes that refinancing has hit a record high of $17.78 billion.

“Locked-down Australians might not have been able to hit the stores over the last couple of months, but they have used the time to take their home loan shopping,” she says.

“This refinancing renaissance is great news. Each month tens of thousands of households are now saving more on their mortgage, but also collectively it puts pressure on lenders to keep their rates competitive.

“In recent months, almost $50 billion worth of residential mortgages has been up for grabs. This might seem like a gigantic pot, but with over 120 lenders on the market, and hordes of borrowers with itchy feet, the competition is intense."

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