While the industry is currently seeing “a peak of interest rate activity” following the two cash rate cuts from the Reserve Bank of Australia (RBA), a market commentator has clarified that fixed rates will likely continue their downward trajectory even as variable rates begin to settle.
Following the July cash rate cut, 52 of the 101 lenders listed on financial comparison website Canstar have cut their variable home loan interest rates.
“Rate decreases continue to wash through from lenders subsequent to the July cash rate cut. Usually it takes around four or five weeks for the Reserve Bank move to fully work through the market, so expect more cuts,” said Steve Mickenbecker, Canstar group executive of financial services.
In the last week, the average variable owner occupier interest rate has fallen from 4.11% to 4.05% for those paying P&I, with the lowest variable rate in the market being 2.89% from Greater Bank and Reduced Home Loans.
However, while there have been 329 variable rate cuts across owner occupied and investment home loans, there has been even more fixed cuts at 436. The lowest in the market currently is 2.79% from Greater Bank, on a one-year fixed rate term.
“While many cuts are yet to filter through, what is clear is the magnitude of the fixed rate cuts is well above that for variable rates. Lenders are taking advantage of low rate funding to go to market with competitive fixed rate offerings as they jockey for market share,” said Mickenbecker.
“Interest rate activity will settle in coming months, until there is another Reserve Bank move. This is unlikely to come until later in the year. [However], there could still be activity in fixed rates, as they are more loosely tied to the Reserve Bank cash rate.
“Cuts to the US Federal Reserve rate could see a further fall in wholesale funding costs for 2 and 3 year debt for Australian lenders, potentially making room for more home loan interest rate downside,” he added.
Depending on the term and lending type, recent fixed rate cuts have averaged between 0.25% and 0.50%.
“Cutting fixed rates also works for lenders in that the margin contraction only impacts on new loans, not the whole lending book.
“We are moving into such low rate territory that bank margins will be squeezed, making the next cash rate cut a stressful one for savers and bank executives,” Mickenbecker added.
