Australia's declining bond yields have prompted lenders to reduce interest rates on fixed home loans in the past few weeks, with some notable cuts recently delivered by Westpac, Macquarie, and Bank of Queensland.
The three-year government bond yield has dropped to 3.5% from 4.2% two months ago, following the weaker-than-expected June CPI print and the RBA's decision to leave the cash rate on hold.
Bond yields reflect where the cash rate will be on average, thus indicating that the market is pricing in three to four cash rate cuts over the next three years.
As a result, lenders are lowering their rates to attract borrowers to fixed-term loans.
However, this does not mean the banks are not predicting any immediate rate changes, but instead are leveraging market expectations that the RBA - despite ruling out near-term rate cuts - will slash rates soon.
While some experts believe the market has overestimated its forecast, the mortgage market further heated up when the country's largest bank and home loan lender Commonwealth Bank of Australia (CBA) slashed variable rates last week.
Judo Bank chief economist Warren Hogan said CBA's latest move signals the bank's intent to further expand its already substantial share of the mortgage market.
"That's the market competition view [of CBA] that says, 'we want to get the market share in mortgages from ANZ or Westpac or NAB or whoever else'," Mr Hogan told the Savings Tip Jar podcast.
He added that CBA cutting their variable home loan rates by as much as 35 basis points reinforces its current stance that rates decrease by November.
"A part [of what's driving CBA's latest moves] could be their higher confidence that there won't be a rate hike," Mr Hogan said.
"There's no doubt that the market backdrop has shifted. I don't necessarily agree with it, by the way.
"Right now the market's pricing in a rate cut by the end of the year, and a series of cuts next year, and that the cash rate will come down to at least 3.5%, if not a bit lower, in the next 12-15 months."
However, as a former bond strategist, Mr Hogan believes such a scenario doesn't happen that easily.
"I think it can get to the level in, say, 2026, but it's not going to average it for three years," he said.
"I think the market's overcooked its expectations, and the banks are just taking advantage of what the market price is."
If that's the case, it's good news then for mortgage borrowers, though these new rates are generally available only to new customers.
HSBC adjusts fixed and variable mortgage rates
This week's biggest mover is the top 10 home loan lender, HSBC.
The Australian subsidiary of the international bank slashed fixed rates across a raft of its owner-occupier and investment home loans by up to 40 basis points.
Borrowers seeking the lowest standard OO rate with an 80% loan-to-value ratio (LVR) can secure 5.59% p.a. (6.30% p.a. comparison rate*) if they fix for five years.
HSBC's lowest rate for the fixed packaged residential mortgage is 5.59% p.a. (6.35% p.a. comparison rate*), locked in for five years.
This is one of the lowest mortgage rates in the market.
The standout rate for basic investment loans from the bank is 6.19% p.a. (7.14% p.a. comparison rate*), while the package rate is 5.79% p.a. (6.49% p.a. comparison rate*).
Both are fixed for five years.
The package home loans come with an annual fee of $390.
HSBC variable rate cuts
On the variable rate front, HSBC bucked the trend by hiking the special offer rate on its Home Smart Package range.
A uniform 10 basis point increase was applied to the following home loan products:
| Product | New rate | Comparison rate |
|---|---|---|
| Home Loan Package Home Smart P&I <80% | 6.29% p.a. | 6.65% p.a.* |
| Home Loan Package Home Smart P&I 80-90% | 6.59% p.a. | 6.95% p.a.* |
| Home Loan Package Investment Home Smart P&I <80% | 6.49% p.a. | 6.85% p.a.* |
| Home Loan Package Investment Home Smart P&I 80-90% | 6.79% p.a. | 7.15% p.a.* |
St George cuts fixed home loans
Following in the footsteps of their parent company, BankSA, Bank of Melbourne, and St George Bank dropped the axe on their fixed-rate home loans by as much as 75 basis points this week.
The three Westpac-owned banks offer the same home loan products.
The headline rate for owner-occupier home loans across the three banks is 5.84% p.a. (7.41% p.a. comparison rate*), available through the Advantage Package, fixed for two years and with <70% LVR.
For investors, the lowest rate is 6.04% p.a. (7.89% p.a. comparison rate*) available through the two-year fixed Investment Advantage Package with up to 70% LVR.
To get the abovementioned rates, an annual package fee of $395 applies.
Regional Australia Bank lowers fixed and variable rates
Armidale-based Regional Australia Bank joined in on this week's cutting action, dropping the rates across its range of variable and fixed mortgages (save for a few hikes on one-year terms).
Following the latest adjustments, the bank's headline rate for OO home loans is now 5.74% p.a. (5.93% p.a. comparison rate*), and 5.94% p.a. (6.09% comparison rate*) for investors.
Both rates are available for home loans with 60% LVR and fixed for three years.
The headline rate for variable home loans with no offset is 5.99% p.a. (6.00% p.a. comparison rate*).
For investment non-offset, the lowest rate is 6.13% p.a. (6.14% p.a. comparison rate*).
Both rates are available for home loans with 60% or less LVR and paying principal and interest.
Meanwhile, here are some of the noteworthy rates Regional Australia Bank offers for variable mortgages with offset accounts:
| Product | New rate (change) | Comparison rate |
|---|---|---|
| Mortgage Offset P&I 70-80% LVR | 6.30% p.a. (-36 bps) | 6.31% p.a.* |
| Mortgage Offset P&I 80-90% LVR | 6.68% p.a. (-15 bps) | 6.69% p.a.* |
| Inv Mortgage Offset P&I 70-80% LVR | 6.54% p.a. (-46 bps) | 6.55% p.a.* |
| Inv Mortgage Offset P&I 80-90% LVR | 6.99% p.a. (-19 bps) | 7.00% p.a.* |
Customer-owned banks slash variable rates
More variable rate cuts were delivered this week by customer-owned banks.
NSW-based Horizon Bank dropped the axe on its Home Sweet home loan products, slashing a uniform 10 basis points.
The headline rate is 5.89% p.a. (comparison rate*), offered through Home Sweet Variable with less than 70% LVR.
Sister banks Firefighters Mutual and UniBank applied an across-the-board 10 basis point cut to their Your Way home loan products for both owner occupiers and investors.
The lowest rate among the banks' newly adjusted rates is 6.14% p.a. (6.20% p.a. comparison rate*), offered through the Your Way Basic Home Loan P&I with LVR up to 80%.
More fixed-rate cuts this week
Heritage Bank slashed 10 basis points on its basic and Home Advantage home loans for terms between one and three years.
Hume Bank also wielded the axe across its myBlue fixed home loans, dropping a uniform 30 basis points to bring the lowest rate offered to 5.84% p.a. (6.13% p.a. comparison rate*)
Photo by Yan Krukau on Pexels
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