Cashed-up banks will continue to cut fixed-rate mortgages: RateCity
Banks will continue to trim their fixed-rate mortgages, but by smaller margins, according to RateCity CEO Damian Smith.
“There are more rate cuts to come, but in the absence of an RBA rate cut, it would be hard to see them coming down as fast as they have since the start of August,” he tells Property Observer.
Smith says although banks won’t admit it, they are “awash with cash right now”.
“Term deposit rates are declining far more than banks have budgeted for. They are looking to get this money off their books,” he says.
Smith says banks are also trying to kick-start the first-home buyer market, which according to RateCity research is down $11 billion compared with 12 months ago.
“Banks don’t have too many other tools available to them right now. They can’t cut variable rates because that will affect all customers and they don’t want to crazy on LVRs because they don’t want to take on bad customers,” he says.
Furthermore, the ban on exit fees has made fixed-rate loans more attractive to lenders, as it allows them to lock borrowers in for a longer period of time.
About 70% of lenders that RateCity compares on its website have cut their fixed rates, the most recent being Westpac and The Greater Building Society.
On average the benchmark three-year fixed rate has fallen from about 7.28% to 6.7%
RateCity’s fixed interest home loan rates over the past 12 months
Date | Average 1-year fixed | Average 3-year fixed |
October 2010 | 6.97% | 7.40% |
November 2010 | 7.03% | 7.44% |
December 2010 | 7.10% | 7.43% |
January 2011 | 7.10% | 7.43% |
February 2011 | 7.10% | 7.45% |
March 2011 | 7.10% | 7.48% |
April 2011 | 7.05% | 7.38% |
May 2011 | 7.09% | 7.41% |
June 2011 | 7.08% | 7.42% |
July 2011 | 7.09% | 7.38% |
August 2011 | 7.03% | 7.28% |
September 2011 | 6.69% | 6.70% |
The above rates were collected at the 1st of each month, except September 2011 figures, which are correct as at September 28. Source: RateCity.
Smith says the possibility of a rate cut by the RBA is now much stronger than it was six weeks ago.
Besides the advertised rate cuts, Smith also confirmed earlier reports that borrowers of good standing are able to negotiate discounts of more than 1% with some of the lenders.
“If someone like the CBA directly acquired a client, they could get their variable rate reduced from around 7.7% to something like 6.5%,” he says.