Interest Rate Cuts

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The RBA kept the official cash rate on hold, but that hasn’t stopped banks from moving home loan rates. 
  
While lenders have made a flurry of cuts to 2- and 3-year fixed rates in the last month, there has been an increase in the number of lenders hiking 4-year fixed rates. 
  
Analysis of the RateCity.com.au database shows 11 lenders have raised 4-year fixed rates, including CBA, Bendigo Bank and Aussie Home Loans, while only two have cut them. 
  
So why are 2-year fixed rates still dropping and 4-year rates rising?

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The RBA is helping facilitate the ultra-low fixed rates, in part, via its term funding facility, which allows banks to borrow money at a three-year fixed rate of 0.10 per cent. 
  
Over the last month, the majority of one- to three-year fixed rate changes have been cuts, not hikes, as lenders make the most of the low-cost funding available. 
  
However, in the last month the majority of four-year fixed rates changes were in the opposite direction as some banks start to factor in a likely rise to the cash rate in 2024 and the end of the RBA’s term funding facility on 30 June this year. 
  
The big question is whether Westpac will hike its four-year rate. Australia’s second largest bank currently has the lowest four-year fixed rate in the market. Hiking this rate could lose the bank its competitive edge in this category.

[smartcode_project:default project_id=26730] 
  
Watching these four-year rates come off the table has some people panicked they will miss the bottom. Just because these rates could be soon rise, doesn’t mean you should rush out and fix for the next four years. 
  
If you are looking to refinance, work out what type of mortgage suits your finances. 

Then shop around for a competitive rate, not the other way around.

Sally Tindall is RateCity.com.au research director
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Work out what type of mortgage suits your finances, then shop around for a competitive rate, not the other way around

Why are 2-year fixed rates still dropping and 4-year rates rising? Sally Tindall

<html><body>AMP Capital economist Shane Oliver tips the first interest rate hike is likely to come in 2023, at least a year earlier than the RBA is currently signalling.

Oliver noted the RBA's key message from its March meeting was that it still has a long way to go to meet its inflation and employment goals.

The RBA has further signalled it still doesn’t expect a rate hike until 2024 and has accelerated its bond buying to keep bond yields down and will do more if needed. 

Oliver agrees that the RBA needs to push back against the sharp rise in bond yields as it could threaten the recovery and that a premature removal of monetary stimulus as suggested by the bond market (which is now factoring in nearly 4 rate hikes by early 2024) will risk seeing the RBA ending up continuing to fail to meet its inflation and employment goals.

"That said, if as we expect the economy continues to surprise on the upside - it was around 1% stronger in the December quarter than the RBA expected just a month ago – the first rate hike is likely to come in 2023, at least a year earlier than the RBA is allowing. 

"That’s still a long way away though and in the meantime – maybe later this year or if not through next year – the RBA with APRA is likely to start tightening lending standards in the face of an increasingly hot residential property market in order to head off another potential threat to financial stability."

Oliver's update noted December quarter GDP rose a stronger than expected 3.1%qoq; retail sales rose 0.5% in January and are up 10.6% on a year ago.</body></html>

Shane Oliver tips the first interest rate hike is likely to come in 2023, at least a year earlier than the RBA is currently signalling

jchancellor

RBA will hike rates in 2023: Shane Oliver

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NAB has today announced cuts to fixed home loan rates with decreases of up to -0.55% for owner occupied and up to -0.15% for investment loans.

Today’s cuts position NAB’s owner occupier 3-year fixed principal and interest package rate of 1.98% (3.83% comparison rate) ahead of the other major banks’ rates for the same term.

Canstar analysis reveals that moving from the average variable rate of 3.28% to a 3-year fixed rate of 1.98% could see an owner occupier paying principal and interest on a $400,000 home loan slash their repayments by $273 each month or $9,828 over three years. However, moving to the lowest 3-year fixed rate in the market of 1.75% (comparison rate 2.22%) from NAB’s subsidiary bank, Ubank would cut repayments by $318 per month. 

<img alt="" height="502" src="https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/nab_rates_2021_1.jpg" width="680">

Canstar Group Executive, Financial Services, Steve Mickenbecker says the move shows NAB is competing for new business by taking advantage of low cost funding.

“Interest rates continue on their downward path for homeowners and investors. NAB’s 11 basis point cut to its three year fixed rate for homeowners means that it has undercut the rates of competitors to deliver the lowest interest rate of the major banks for this popular fixed term.”

“Low cost funding has made fixed rates the playground for the big banks and while the Reserve Bank term funding facility remains available, the great deals should stay strong. Mid-year could see a small upward adjustment when the term funding is expected to be fully allocated and expire."

“It’s a great time to be thinking about fixing a rate when you can lock in for three or four years with an interest rate below 2%. Today’s move from NAB suggests competition at the low interest rate end of the market will be with us for a little longer,” Mr Mickenbecker concluded.

<img alt="" height="502" src="https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/nab_rates_2021_2.jpg" width="683">

<h2>Properties you may like:</h2>

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Today’s cuts position NAB’s owner occupier 3-year fixed principal and interest package rate of 1.98% ahead of the other major banks’ rates for the same term

jordan_55689

NAB cuts fixed rates by up to -0.55%

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From 1 January to 31 December there were 6,777 cuts to home loans, with an average cut of -0.30%, according to Canstar's database.

It recorded:

<ul>
<li>880 cuts to variable rates for owner occupiers, with an average cut of -0.21%</li>
	<li>2,455 cuts to fixed rates for owner occupiers, with an average cut of -0.33%</li>
	<li>764 cuts to variable rates for investors, with an average cut of -0.21%</li>
	<li>2,678 cuts to fixed rates for investors, with an average cut of -0.32%</li>
</ul>
Over the same period there were 535 home loan rate increases, with an average increase of 0.20%.

On 1st January 2020 the average variable rate for owner occupiers paying principal and interest was 3.73% (80% LVR). Today that rate is 3.32% The lowest variable rate was 2.69% and it is now 1.99% (80% LVR) or 1.77% (60% LVR).

On the 1st January 2020 the average 3-year fixed rate for owner occupiers paying principal and interest was 3.15%. Today the average 3-year fixed rate is 2.30%. The lowest 3-year fixed rate was 2.69% and it is now 1.89%.

<figure><a class="colorbox colorbox-insert-image" href="https://res.cloudinary.com/dz9xllyip/image/fetch/q_auto:good/https://s3-ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/pictures/article-images/2020_home_loan_rate_changes.jpg" rel="gallery-all"><img alt="" class="image-article-full-width-580px" height="505" src="/s3/files/styles/article_full_width_580px/public/pictures/article-images/2020_home_loan_rate_changes.jpg?itok=dknBFocG" width="580"></a></figure>Savings interest rates

From 1 January to 31 December Canstar recorded:

<ul>
<li>529 cuts to savings, with an average cut of -0.18%</li>
	<li>262 cuts to regular savings accounts, with an average cut of -0.19% </li>
	<li>267 cuts to bonus savings accounts, with an average cut of -0.17%</li>
</ul>
On 1st January 2020 the average regular savings account rate was 1.12%. Today that rate is 0.43%. The maximum rate was 2.65% and it is now 1.75% (available for 4-months).

On 1st January 2020 the average bonus savings account rate was 1.47%, now just 0.75%. The maximum rate was 2.25% and it is now 1.35%.
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From 1 January to 31 December there were 6,777 cuts to home loans, with an average cut of -0.30%, according to Canstar

urban.com.au

2020 saw 6,777 interest rate cuts across Australia's home loan institutions

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EXPERT OBSERVER
The central bank today dropped the cash rate after an emergency out-of-cycle board meeting to a record low of 0.25 per cent.
We’re calling on all the banks and lenders to pass on their rate easing in full, just as they did only 16 days after the latest rate cut. 
Market forces set prices but we can help create the competitive environment through our skilled agents and marketing. There will always be people looking to transact.
Our members will always be able to create competition for our buyers and sellers in any market that we are faced with. 
We are prepared and ready to work in this ‘new normal’ environment.
DAN WHITE (pictured) is the Ray White Group Managing Director
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j.ballantyne1990-6AQqhLzZaK

All banks and lenders should pass on the cuts in full: Dan White

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ANZ is the only bank in the big four to cut variable home loan rates in this latest cut.
They reduced rates by 0.15 basis points.
As a result of today’s changes, ANZ’s variable rate home loan customers will save approximately $34 a month or $406 a year. This is based on an owner occupier with a $400,000, 30-year loan paying principal and interest on the discounted variable rate on the minimum repayment.
The move follows on the back of the recent RBA rate cut during their emergency March 19 meeting where they reduced the cash rate to a record low 0.25%.
ANZ have also introduced a two-year fixed rate of 2.19% p.a for owner occupiers paying principal &amp; interest.
Like NAB they have made it possible to request a deferral of home loan repayments for up to six-months.
ANZ CEO Shayne Elliott said the package aimed to support Australian business and the people who work for them.
"We understand the impact this crisis is having and ANZ will play a major role in backing Australia's economy and our customers through these challenging times," he said.
"We have been working with both the Federal Government and our regulators to keep money flowing through the economy and we'll do all we can to keep businesses afloat and Australians employed, as well as reducing the financial pressure on households."
"Our decision to reduce variable home loan and small business rates is the right thing to do for our existing customers, particularly the significant number of our home loan customers who are self-employed and managing the effects of the COVID-19 crisis on their own businesses."
"The highly competitive fixed-rates being offered will provide customers certainty over repayments with our lowest fixed-rates on record."
RateCity.com.au research director Sally Tindall said the bank was providing relief for most of its borrowers.
"It's great to see ANZ has stepped up and delivered something for the majority of its borrowers to help them through these turbulent times," she said.
"In this economic climate, every dollar counts.
"When these changes come into effect, ANZ will have the lowest ongoing variable rate from the big four banks at 2.72 per cent," she said.
"Now three of the four big banks are offering fixed rates as low as 2.19 per cent, we're likely to see other lenders chase after them, potentially cutting fixed rates even further," she said.
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ANZ the only big four bank to cut variable home loan rates

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Some 31 lenders have slashed variable rates since August 1 according to Mozo.com.au, with competition in the fixed rate segment of the market is at its highest in almost 12 months. 
Accoding ot Mozo.com.au one in three lenders have cut at least one fixed rate term since the start of August.
Kirsty Lamont, Mozo Director said their database shows the number of fixed rate cuts has outstripped the volume of fixed rate hikes for the first time in almost a year.
"The most competitive rate for the popular 3 year fixed category in Mozo’s database is now 3.69 percent, while 71 lenders now offer variable rates below 4 percent," she said.
“Competition in the home loan market is rife this spring property season as lenders bid for high quality mortgage customers. This is why we’re seeing the bulk of cuts concentrated around owner occupiers paying principal and interest.
"Investors paying off principal and interest were awarded the biggest rate discount, with one year fixed rates slashed by an average of 29 basis points.
“This suggests lenders are slowly closing the divide between owner occupier and investor rates for principal and interest loans.
“The banks are being strategic in the wake of stricter lending requirements. They know the more they can fill up their books with low risk loans, the more wiggle room they have to take on higher risk loans while remaining within APRA’s guidelines.”
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Number of fixed rate cuts outstrips volume of fixed rate hikes: Mozo

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EXPERT OBSERVER
GDP rose by just 0.3% in the September quarter and this saw annual growth slow to 2.8% year on year.
This was well below market (and RBA) expectations for growth around 3.4% year on year.
To some degree the slowdown in the September quarter reflects payback after two surprisingly strong quarters. But it also highlights the uncertainty around consumer spending as house prices slide and the ongoing patchiness of business investment.
We still see the risk of a recession in Australia as being low, but the rising list of downside risks to growth also mean that growth is likely to be constrained at around 2.5-3% over the year ahead as opposed to achieving the RBA’s expectation for growth “to average around 3.5%”. 
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/12/5/real-GDP.jpg" alt="">
The main points from the September quarter GDP data and associated outlooks are as follows:
- Consumer spending slowed to just 0.3% quarter on quarter or 2.5% year on year. Looking forward, apart from quarterly volatility, consumer spending is likely to remain under pressure. Yes employment growth has been strong but this is likely to slow, wages growth is likely to remain weak (with average earnings up just 0.2%qoq or 1.2%yoy in the September quarter) and households are unlikely to have the confidence to run down their saving further in the face of declining home values. (While the household saving rate was revised up its still just 2.4% which is down from around 9% in 2011 and more than a 10 year low). Likely fresh tax cuts next year might help but its doubtful they will be enough.
- Housing investment rose 1%qoq and contributed 0.1 percentage points to growth. But while there is still a decent pipeline of work yet to be finished, housing investment will likely slow as the downtrend in building approvals flows through. This in turn will act as a drag on consumer spending via slower demand for household goods.
- Underlying business investment (which takes into account asset transfers between the private and public sector) fell 1.9%qoq and detracted 0.2 percentage points from growth. Mining investment is continuing to fall but at least it’s getting near the bottom and the outlook for non-mining investment has improved.
 - Underlying government spending (which takes into account asset transfers between the private and public sector) rose 1.5%qoq and contributed 0.4 percentage points to growth, with the infrastructure spending boom continuing. Public sPending is likely to make a continuing solid contribution to growth over the next year.
 - Inventories detracted 0.3 percentage points from growth.
 - Net exports made a 0.3 percentage point contribution to growth. The outlook for export growth is still positive thanks to resource exports and as service exports like tourism and education continue to grow. But the contribution to growth is likely to slow going forward and is at risk if the US trade war with China is not resolved next year.
- Inflation pressures and wages are still subdued. Inflation as measured by the private final consumption deflator was just 0.4%qoq or 1.6%yoy. Average compensation per employee was up by just 0.2%qoq or 1.2%yoy. And real unit wages costs are falling at the rate of 1.5%yoy. 
Implications
The Australian economy continues to grow but its slowed back to a subpar pace after a brief spurt. A bottoming in mining investment, improving non-mining investment, strong infrastructure spending and strong export earnings should support growth going forward but are likely to be offset by the downturn in housing construction and house prices weighing on consumer spending. As such growth is likely to be stuck around 2.5-3% over the year ahead.
Given the combination of falling house prices, tightening credit conditions and constrained growth which will keep wages growth weak and inflation below target we are changing our view on the RBA from being one of rates on hold out to second half of 2020 to now seeing the next move being a rate cut.
However, with the RBA still seeing the next move as being up it will take them a while to change their thinking so we don’t see rates being cut until second half next year. When it does start cutting the RBA will likely stick to 0.25% increments and since rate moves are a bit like cockroaches there is likely to be more than one. This in turn will ultimately weigh on the Australian dollar.
SHANE OLIVER is Head of Investment Strategy and Chief Economist at AMP Capital.
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soliver-smf6LQXgW9

RBA to cut rates second half of next year: Shane Oliver

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There are three leading economists who think that the Reserve Bank will be cutting interest rates this year; AMP Capital's Shane Oliver, Industry Super's Stephen Anthony, and Market Economics' Stephen Koukoulas.
"The Reserve Bank is conflicted. It knows the economy is slowing and that risks are building in asset markets, especially east coast property," Mr Anthony told Nine Entertainment.
"But should that be the official forecast? It also knows that if it can 'manage' sentiment it may also contribute to a softening of activity rather than a bust, especially via property prices and dwelling investment."
It was more likely we had entered "a secular bear market phase" with respect to asset prices, Mr Anthony suggested.
"With the background being declining residential house prices, especially in Sydney and Melbourne, the wealth effects will be significant, likely reducing household consumption growth to at or below 2 per cent in 2019."
<a href="https://www.propertyobserver.com.au/subscribe" target="_blank"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/1/1/Strip%20ad%20keep%20up%20in%202019.jpg" alt=""></a>
Dr Oliver believes the Reserve Bank's bias is "still slightly hawkish" in that "it has not turned dovish yet but it is getting less hawkish and bit more open to the view that the next move in rates may not be up".
Nine Entertainment did a poll of 38 economists on the direction of the next interest rate move and 35 advised the Reserve Bank will likely put them up in 2020.
The consensus was that the RBA would raise the official cash rate to 1.75 percent by June 2020.
Eighteen months ago most of them were forecasting a rate rise in 2018. Six months later, predictions moved to 2019. Now the general consensus is rates won't go up until 2020 - with some even calling out to 2021.
AMP chief economist Shane Oliver arrived at his view <a href="https://www.urban.com.au/expert-insights/finance/93238-rba-to-cut-rates-second-half-of-next-year-shane-oliver" target="_blank">a few weeks back</a> after the September quarter Australian GDP figures (which came in December) showed the rate of growth had slowed to an annualised 2.8 per cent.
Oliver reasons that the RBA won't move to lower the rate in any attempt to head off further falls in the property market but to help households that carry a mortgage.
But the reversal in house values over the past year has promoted a negative wealth effect which is more likely to result in consumers spending less.
To have much impact the RBA would need to cut twice so Oliver said the official cash rate might go down to 1 percent given the slump in the major housing markets of Sydney and Melbourne. 
The Reserve Bank made a policy error in pursuing stability in interest rates in the belief this would encourage confidence, Mr Koukoulas argued.
"The very slight change in tone in recent times is a belated realisation of this error and if, as seems likely, inflation remains outside its target range and its rosy forecasts for growth and unemployment fall flat, it will, pragmatically, change tack."
The wealth effect and its relationship with consumption growth also had been played down, he said, "at its peril".
The RBA will announce its initial 2019 monetary policy decision when the board convenes next month.
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Why the RBA will cut interest rates in 2019

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The RBA cut the official cash rate to a historic low 1.25% in its June meeting, the first time it's cut the rate in nearly three years.
A number of lenders followed suit, cutting their rates, some within the hour, after the announcement.
The first to cut was Athena, a small Sydney-based non-bank lender who only entered the market this year. They cut their rates by the full 25 basis points within 15 minutes of the RBA decision.
The online lender announced a new headline variable rate for owner-occupiers at 3.34 percent.
The <a href="https://www.urban.com.au/expert-insights/finance/99349-anz-first-to-pass-on-part-of-june-2019-rba-rate-cut" target="_blank">first big four bank to cut was the ANZ</a>, just nine minutes after the RBA's announcement, however they've been outed by Treasurer Josh Frydenberg because they only cut 18 basis points, as opposed to the 25 basis points the RBA cut by.
“I think the ANZ has let down its customers,” Frydenberg said.
“This is deeply disappointing from the ANZ.
"We heard from Commissioner Hayne just months ago that the banks were putting profits before people. Actions like this don't give the Australian people any comfort that the banks have changed their behaviour”
ANZ chief executive Shayne Elliott said it was unfair to keep cutting depositor rates and penalising people who rely on interest income.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/6/5/Banks-interest0-rates.jpg" alt=""> The banks rate moves since January 2018. Source: DFA
The other big four banks weren't all going to follow suit.
Commonwealth Bank were next, <a href="https://www.urban.com.au/news/99374-cba-announce-full-rate-cut-after-june-rba-meeting" target="_blank">announcing their 25 basis point cut</a> at around 3.30pm. 
Effective from June 25, CBA's standard variable rate will drop by 0.25%.
Angus Sullivan, group executive retail banking services, said “we have carefully considered the RBA rate decision and the current funding environment, together with how we continue to meet our regulatory commitments, capital requirements, and community expectations."
NAB joined CBA with <a href="https://www.urban.com.au/expert-insights/finance/99378-nab-joins-cba-in-full-0-25-rate-cut-to-historic-lows" target="_blank">a full 25 basis point cut</a> for their standard variable rate which will be the lowest rate they have offered in four decades.
Mike Baird, chief customer officer of consumer banking, said “we strongly believe reducing rates is the right thing to do by our customers and reflects our focus on earning trust in the community and rewarding our loyal existing customers."
Westpac were the last to cut, <a href="https://www.urban.com.au/expert-insights/finance/99381-westpac-to-cut-by-0-2-but-more-for-io-borrowers" target="_blank">only passing on a 20 basis point cut</a>.
There will be higher rate cuts for its investor only borrowers who will be a 35 basis point cut.
David Lindberg at Westpac said the bank took many factors into account in making the decision.
“We are operating in a historically low interest rate environment, which creates the opportunity for home-owners to get ahead on their repayments,” he said.
“It is also a good time for first home buyers to get onto the property ladder with some of the lowest rates in the history of the Australian mortgage market available.”
The quick moves from the big four is in stark contrast to when the RBA last cut the cash rate in August 2016.
Only three of the big four banks passed on the full cut last time around, and waited up to 20 days to do so.
Graham Cooke, insights manager at home loan comparison site Finder.com.au, said if your bank doesn't cut, then you should look elsewhere.
“If you don’t get the full rate cut, vote with your feet," Cooke said. “A lower cash rate will spur even further competition within the market so it is the perfect time to weigh up your options as you have the bargaining power.
"The best value home loan rates right now start with a ‘3’,” he said. 
Finder's research shows the average variable rate across all lenders is 4.91%. If lenders cut the full 25 basis points, mortgage holders could save $1,812 a year on a $1 million loan.
Click here <a href="https://www.propertyobserver.com.au/images/2019/6/5/Potential-savings-finder.jpg" target="_blank">to enlarge</a>.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/6/5/Potential-savings-finder.jpg" alt="">
Other lenders who have either cut or have announced they will be cutting their home loan rates.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/6/5/Rate-cutters.jpg" alt="">
 
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