Loan war flares as big bank cuts rates

AUSTRALIA’S biggest bank has slashed variable home loan interest rates by up to 0.4 percentage points for new customers as a mortgage war heats up.

The Commonwealth Bank’s lowest variable rate is now 2.29 per cent, while mid-sized bank ING also cut variable rates on Friday by 0.25 percentage points to 2.24 per cent.

Existing customers are being urged to call the bank and demand the same deal.

Ratecity.com.au research director Sally Tindall said 28 lenders had cut variable rates in the past month. She said CBA’s cut brought it closer to Westpac’s low variable rates, and she expected NAB and ANZ to potentially cut in the coming months.

“The last thing the Commonwealth Bank wants to do is to lose business to one of their big competitors,” Ms Tindall said.

Banks fought a fixed-rate war in recent years, increasing the proportion of fixed customers to about half the market. But with those borrowers now locked in, the battleground had shifted to variable rates, Ms Tindall said.

The lowest variable mortgage rate on Ratecity’s database is 1.77 per cent, by Reduce Home Loans, while the lowest fixed rate is Greater Bank’s 1.59 per cent for one or two years.

CommBank is offering the biggest rate discounts to borrowers who have at least a 30 per cent deposit and its cuts are only for new customers.

“If you are on a higher variable rate, pick up the phone and ask them why, as a loyal customer, you’re paying more,” Ms Tindall said.

The Reserve Bank reduced its official interest rate from 0.75 per cent to 0.1 per cent between March and November 2020, but lenders did not pass on all of those cuts to borrowers.

Canstar group executive financial services Steve Mickenbecker said financial markets expected the RBA’s next rise to be about two years away.

He said CommBank’s decision to offer lower rates for higher-equity home loans suggested it factored in a potential house price correction “and doesn’t want to be caught if the tide goes out”.