Australian Banks Starting To Cut Fixed Interest Mortgage Rates

Post by Sharat on September 21, 2017 · Under loans · Comments Off on Australian Banks Starting To Cut Fixed Interest Mortgage Rates 

Many Australian banks have hiked rates on their interest-only loans recently, however that trend seems to be reversing with CBA joining a group of banks and cutting fixed rates on interest-only loans. The cut in interest rates applies only to CBA’s Fixed Wealth Package and Fixed Rate Home Loan products for both owner-occupiers and investors. Recently ANZ also cut its two-year fixed rate on interest-only loans by 10 basis points. The lender also increased the rate for principal and interest loans.

Within APRA limits

The most likely reason the banks are cutting interest-only loan rates after hiking so aggressively to begin with is that banks are probably comfortably within APRA’s lending limits which means they are looking to expand their loan book again. When banks initially started curtailing their interest-only loans, some of them must have reduced such loans to about 20 per cent of new lending which is well within the threshold set by APRA. This means they have room to ease off a bit and start increasing their lending to about 30 per cent of new loans.

Banks pricing in future interest rate movements

The fact that banks are lowering their fixed rates suggests that the Australian central bank will probably not raise official cash rates in the near future. When banks set their fixed interest rates, they tend to try to price in future rate rises, so if you have a two-year loan, the rate you obtain indicates how likely the bank thinks the market rate will move during that time period. Fixed interest rates suggest the lender is betting that rates are either going to hold or dip in the near future.

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