In a boon to Australian consumers, a mortgage rate war is underway following the recent 25 basis points overnight cash rate cut made by the Reserve Bank of Australia (RBA).
A week after the Big 4 passed in full the rate cut in full on their standard variable mortgage rates, Westpac initiated another round of rate reductions, this time reducing its one-year fixed-rate home loans to 4.79 per cent. The lower rate applies only to new borrowers with mortgages above $150,000.
The move prompted the Bank of Melbourne and St George to cut their one- to five-year fixed rates below 5 per cent.
"It's a further continuation of injecting more competition into the home loan marketplace, and also a confidence booster given that we've got the lowest cash rate for 53 years," Bank of Melbourne Chief Executive Scott Tanner said in a statement.
"We believe this new offer will help bolster confidence among home buyers, existing owners banking elsewhere looking to switch to a better deal and investment buyers," WestpacRetail Banking General Manager Gai McGrath said in a statement.
The new round of rate cuts is possible because of lower funding costs for banks and strong profit growth.
Kirsty Lamont of comparison Web site Mozo said the situation provides a dilemma for borrowers if they should lock now or hold back and wait for more rate cuts.
Ms Lamont said the lowest fixed one-year rate is that of the Greater Building Society at 4.74 per cent.
Due to the changing lending conditions such as out-of-cycle rate cuts independent of RBA decisions, fixed home loans finances through RateCIty reached 18.45 per cent, the highest proportion in five years.
In Westpac, take-up levels for fixed home loans doubled from 8 per cent to between 15 and 20 per cent when it cut its two-year rate to 4.99 per cent in February 2013.
At St George, fixed-rate loans went up to 30 per cent from 10 per cent when the bank cut its mortgage rate.
But in the case of the National Australia Bank, its offer of the lowest interest rates among the Big 4 failed to boost the lender's satisfaction rating among its clients.
The monthly DBM Consultants' Business Financial Services Monitor said NAB's satisfaction rating averaged 7 out of 10 in April, while ANZ got s lower 6.9 rating. NAB cut its standard mortgage rate to 6.13 per cent while ANZ reduced its rate also to 6.13 per cent.
CBA's rate is 6.15 per cent and Westpac in 6.26 per cent.