THREE of the nation’s biggest banks have slashed interest rates on their fixed rate mortgages to below 5 per cent for the first time in a move that will save home buyers thousands of dollars.
The nation’s biggest lender, the Commonwealth Bank, fending off calls for a royal commission into the behaviour of its financial planning arm in 2006, slashed its five-year fixed rate mortgage to 4.99 per cent yesterday.
It is the first time in the bank’s 103-year history that it has dropped interest rates on fixed five-year loans below the 5 per cent mark.
The CBA’s move triggered a domino effect among the other big banks, with Westpac and National Australia Bank matching the rate only hours later.
Only the ANZ was left dragging the chain on rates cuts, as it said it would review its 5.79 per cent five-year fixed rate in due course.
The mortgage rate cuts came the same day as inflation was revised up to an annual rate of 3 per cent — the top of the Reserve Bank’s target range — reducing the likelihood of further official interest rate cuts and pushing the dollar higher to US94.5c.
The rate-cut scramble is likely to be comfort for interest-burdened homeowners and buyers as new housing data obtained by The Australian showed a dramatic rise in median house prices.
New figures released today confirm house and apartment prices rose more than 10 per cent for the 12 months to June, with the median Sydney house hitting $811,837, a 17 per cent increase and the biggest since early 2003.
According to Ratecity, which tracks about 100 lenders, the average interest on variable loans is now 5.28 per cent versus 5.66 per cent for five-year fixed mortgages.
According to RBA data, the average three-year fixed home loan rate has fallen from a peak of 9.4 per cent in July 2008, before the global financial crisis, to 5.2 per cent in June.
Ratecity product director Peter Arnold said it was the first time that the big banks had moved rates under the 5 per cent mark for five-year fixed term loans.
“There has been plenty of action as low as 3.99 per cent on one- and two-year terms, but in the five-year category this is significantly longer,” he said.
“Commonwealth Bank has either decided it wants to defend or expand its dominant market position or the banks know something about the future direction of interest rates we don’t yet.”
For NAB, CBA or Westpac customers with an average, 25-year term, first homebuyer loan of around $300,000, the interest rate cuts will save $124 a month or $7440 over five years.
“But customers should remember that the longer the fixed term the greater the cost if variable rates fall further,” Mr Arnold said.
Despite being the first to pull the trigger, CBA head of its home loan business Clive van Horen, said the bank would not be dragged into price war on its other fixed-term loans.
“This is not about us getting into a tit for tat price war but … it’s a competitive market and we certainly wanted to be first to move,” he said.
“The yield curve has dropped a bit which in simple language means the funding costs have dropped in the longer term. So we want to pass some of that onto our customers.”