Fixed-rate lending at the moment is deeply unpopular; just 2.60% of all new home loans (including refinances) were on fixed terms, according to the latest ABS data.
Nonetheless, this is about double the rate of two months prior when it was 1.16% - still much lower than the peak in mid-2021 when upwards of 45% of all new home loans written in July through September were fixed.
So what's to make of all this? Some wholesale benchmark rates might show why.
Swap rates have come tumbling down lately; the 3-year swap in Australia is 54 basis points lower, at 3.64%, over the last month. A swap is how lenders hedge their bets.
An institution might like to swap their floating interest rate with another institution's fixed rate. As such, if there's expectation of more interest rate rises, variable-to-fixed swaps could rise in demand as banks chase stability.
Well, to put it bluntly, the arse has fallen out of swaps over the past month as RBA rhetoric shows we're probably done with rate hikes, and there's talk of rate cuts and a recession in the US and elsewhere.
Thus, banks can rest easier knowing their variable wholesale lending terms might not get much more expensive, and could even go down.
Swap rates in Australia are also based on Treasury yields on Commonwealth Government bond rates.
Yields fall when prices rise; prices are rising because a) people think we're done with rate hikes, and b) volatility elsewhere means institutions would rather chase stability in investing in a government with lower yields, than gains.
Treasury 5-year yields are 47 basis points lower than a month ago.
So what does all this mean for home loans? Well, banks expect lower interest rates in the future, so they can entice borrowers onto lower fixed rates.
It will be interesting to see if more people take out a fixed-rate mortgage due to these cuts.
Fixed rate cuts this week
Westpac was perhaps the biggest scalp this week, taking the sword to pretty much all of its fixed rates. The 2- to 5-year fixed rates on packaged deals for owner occupiers at 70% LVR are all below the 6% threshold.
Investor rates are still a touch above the 6% mark.
Here are some other movements:
Bank of Queensland
BOQ cut rates on a bunch of products fixed for between 2 and 5 years.
The lowest rate in this spate of cuts is 5.74% p.a., which belongs to the 3-year fixed rate for owner occupiers with up to 90% LVR.
It was cut by 45 basis points, and has a comparison rate of 6.33% p.a.
Which wholesale rates saw the steepest declines? That's right, 3 year rates.
ME Bank
BOQ-owned ME Bank did similar this week, with a whole range of fixed products' rates cut by up to 65 basis points. A notable inclusion was a handful of 1-year rates.
The lowest rate in this round of cuts is the owner occupier 80% LVR rate fixed for 3 years, which was cut by 35 basis points to 5.94% p.a. (7.86% p.a. comparison rate*).
Great Southern Bank
At Australia's third-largest customer owned bank it was much the same story.
The 3 year rate - again, the cheapest in this round - was cut by 50 basis points to 5.99% p.a. (7.47% p.a. comparison rate*).
Any love for variable rates?
A lot of the movement this week has been in the fixed lending space, which is hardly setting the world on fire.
Luckily there was some movement across variable rates, from both Newcastle Permanent and Greater Bank.
While still - for the mean time - operating under their own brands, the two joined forces in 2023 to become the second-largest customer owned bank.
They seem to move in cahoots and their products are increasingly becoming more aligned, however there are some differences as noted below.
They also remain two of the few to continue offering cashback deals.
Keep in mind these rates are for new customers only - existing customers are likely unaffected.
Newcastle Permanent
Highlights from 'The Perm' include:
- OO Real Deal Special Offer 80%: 5 basis point cut to 6.04% p.a. (6.08% p.a. comparison rate*)
- OO Real Deal Special Offer 95%: 5 basis point cut to 6.79% p.a. (6.83% p.a. comparison rate*)
- Inv Real Deal Special Offer 80%: 5 basis point cut to 6.24% p.a. (6.28% p.a. comparison rate*)
- Inv Real Deal Special Offer 95%: 5 basis point cut to 6.89% p.a. (6.93% p.a. comparison rate*)
A host of other variable rates were also cut by similar margins. Where Newcastle Permanent differed to Greater Bank this week is that some fixed products were also cut.
The Perm appears to offer products at a slight price premium to Greater Bank; the only variable rate below the 6% threshold is on a packaged deal, which wasn't adjusted this week.
Greater Bank
Highlights at the other Hunter-based bank include:
- OO Great Rate Discount 80%: 5 basis point cut to 5.99% p.a. (6.00% p.a. comparison rate*)
- Inv Great Rate Discount 80%: 5 basis point cut to 6.24% p.a. (6.25% p.a. comparison rate*)
A host of other variable rates were also cut, including those on packaged products. For LVRs above 80%, the rate attracts a 50-80 basis point premium.
Among both banks its curious the large gulf between lower and higher LVRs. Generally, for many banks, this gulf has been narrowing in recent months.
Photo by Dusan Kipic on Unsplash
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