Lenders Cut Rates While RBA Sits Tight

Posted on 15/11/2017  
Lenders Cut Rates While RBA Sits Tight

Lenders are cutting their mortgage rates amid a competitive housing finance market - while the Reserve Bank has given more signals that it won’t be increasing the official interest rate in the foreseeable future.

Research suggests 30 lenders have cut their home loan rates for owner-occupiers since the start of October. Financial comparison website mozo.com.au says the average variable rate cut for an owner-occupier paying principal and interest is 15 basis points, while one lender has cut by more than five times that.

It says the “sudden surge of rate competition” has coincided with improved conditions for first-home buyers - including less competition from investors, cooling prices in major markets like Sydney and stamp duty exemptions and discounts in some states.

“Lenders are expecting first-home buyers who gave up hope of owning a property to start looking again and want to entice as many new mortgage customers as they can by offering rock bottom interest rates,” says Mozo director Kirsty Lamont.

According to Mozo’s database, 70 lenders now have interest rates under 4.00% for owner-occupiers with a principal and interest loan. 

 “Right now lenders want to be seen to have a headline variable rate starting with a 3. With the Reserve Bank likely to tread carefully around official interest rates until mid-2018, banks appear to be taking the lead on monetary policy as they see fit.”   

Mozo says some lenders have also introduced new offers with rates for owner-occupiers paying off principal and interest starting at 3.39%.

Meanwhile, the Reserve Bank has signalled that interest rates could remain lower for longer.

The Reserve Bank’s quarterly Statement on Monetary Policy predicts core inflation will stay below the central bank’s 2%-3% target next year and will not exceed the bottom of the range in 2019.

Westpac chief economist Bill Evans says the lower inflation forecasts from the RBA has “significant policy implications”, reinforcing his expectation that rates will not rise for two years.

The bank’s quarterly review shows it is expecting a big improvement in Australia’s economic growth, forecasting that it will lift from only 2.25% this year to an average 3% next year - and lifting further to 3.25% by mid-2019.

The better growth will bring a gradual fall in the unemployment rate, but it will not be fast enough to generate higher wages or inflation.

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