Fixed rates have 'been dropping like dominoes', says industry expert
In an eye-opening move, Commonwealth Bank has unveiled a new two-year fixed rate special at 4.99 per cent - its first foray into sub-5 per cent territory this cycle. This development comes as lenders across the country continue to trim fixed rates, following the Reserve Bank of Australia’s (RBA) recent cash rate reduction.
Australia’s largest bank now stands alongside Westpac, which last month dropped its lowest fixed rate to 4.89 per cent, as major lenders respond to the RBA’s August decision to lower the cash rate to 3.60 per cent. According to Canstar’s Sally Tindall, more than 40 lenders have already reduced at least one fixed rate since the central bank’s move, creating a competitive landscape for brokers and their clients.
“Fixed rates have been dropping like dominoes on the back of the August cash rate cut,” Tindall told Yahoo Finance. “As a result, there’s now a smorgasbord of lenders offering fixed rates in the ‘4’s’ including Big Four bank Westpac, and now CBA.”
The new CBA offer is available to owner-occupiers making principal and interest repayments, provided they have at least 30 per cent equity in their property. The bank confirmed the rate is accessible via both CBA Home Lending Specialists and mortgage brokers, for new borrowers and existing variable rate customers looking to switch or fix a portion of their loan.
Westpac currently leads the pack for fixed rates among the majors, except for the three-year term, where it shares the top spot with NAB at 5.29 per cent. The lowest two-year fixed rate on Canstar’s database is 4.64 per cent, available from Pacific Mortgage Group and Australian Mutual Bank.
Tindall described CBA’s move as one designed to “turn heads,” but cautioned that the offer is time-limited and subject to eligibility requirements.
Fixed or variable? The broker’s dilemma
While the trend in fixed rates is downward, the decision to lock in a rate remains highly individual. “Some borrowers, particularly those who fixed when rates were at record lows, and are now back on the variable rollercoaster, could be drawn to the peace of mind this type of loan can bring, despite the fact rates are now a lot higher than they were four or five years ago,” Tindall said.
She advised brokers and clients to weigh up the restrictions of fixed loans, consider the desired lock-in period, and compare offers across the market. “For those looking to pay as little interest as possible, it’s a crystal ball exercise and one you’ll only know if you got right with the benefit of hindsight.”
RBA Outlook: More Cuts on the Horizon?
Market consensus suggests the RBA will hold the cash rate steady at its upcoming September meeting, but further easing is widely anticipated. The Big Four banks are split on how many additional cuts to expect, with CBA and ANZ forecasting just one more reduction this cycle, Westpac predicting three, and NAB two.
Tindall noted, “Even if we do see two or three more cuts, there’s no guarantee your lender will pass these on in full to their variable customers. We’ve seen in the past that banks can be selective about how much of an RBA cut they pass on.”
Her advice for brokers and borrowers: “Don’t rely on the crystal ball. Instead, put it aside and think about what you need.”
