Banks sharpen mortgage rates ahead of lending frenzy

Two of Australia’s biggest banks have slashed interest rates on a suite of home-loan products in what’s shaping up as the start of a lending war.

The country’s largest bank has shaved several of its loan products by up to 15 basis points, with its lowest advertised variable rate at 2.69 per cent.

ING, the country’s fifth-largest bank in terms of household balances and mortgages, has also taken a knife to its suite of lending products, cutting its rates by 10 basis points.

Its lowest advertised variable rate is 2.49 per cent.

The move comes a week after Westpac began advertising the lowest variable rate on offer out of the major four financial institutions, offering a two-year variable rate at 2.19 per cent that then reverts to 2.69 per cent.

RateCity research director Sally Tindall said Friday’s cuts would force the rest of the banking industry to begin slashing rates before the Reserve Bank likely cuts the official cash rate in either October or November.

“Home loan rates might be at record lows, but it’s unlikely to have hit the bottom yet,” she said.

“These cuts from CBA, Westpac and ING will force other lenders to cut their rates in an effort to outbid Australia’s biggest banks.”

Westpac chief economist Bill Evans is expecting the central bank to cut the cash rate to 0.1 per cent on the same day the Morrison Government is expected to hand down the Federal Budget.

However, the RBA may wait till November to move on interest rates to better understand what fiscal policy measures will be implemented following the October 6 budget date.

The low-interest environment is causing a large volume of existing mortgage customers to take advantage of refinancing their loans while rates remain at historically low levels.

Major lenders are looking to capitalise on the flurry in switching activity, with banks also offering cashback offers to entice borrowers looking to refinance.

Ms Tindall said Westpac’s strategy to offer a low two-year variable rate in combination with a $3000 cashback deal for refinancing was one of the most lucrative deals offered by a major bank.

“Westpac has changed tack to get new customers in the door, switching their basic variable rate to an introductory rate of just 2.19 per cent for the first two years,” she said.

“This introductory rate from Westpac, coupled with $3000 cash upfront for refinances, is an incredibly competitive offer from a big-four bank.”

The lowest variable rate being advertised within the home loan market is 1.89 per cent from Reduce Home Loan.

It can be acquired if a borrower has a loan-to-value ratio of 60 per cent, which means a mortgage holder must already hold 40 per cent of the required capital for the loan.