A Westpac ATM in Hamilton, New Zealand
Three of the big four banks in Australia cut their fixed interest rates on Wednesday to below 5 per cent as part of a rate war among the lenders. The rate war provides borrowers the opportunity to enjoy record-low interest rates on the long term.
The Commonwealth Bank of Australia (CBA) initiated the war by lowering its five-year fixed rate to 4.99 per cent. National Australia Bank (NAB) and Westpac followed within hours with NAB matching the rate for its four-year loan and further bringing it down to 4.94 per cent for a three-year loan, while Westpac brought down their five-year loan rate to 4.99 per cent.
Assessing the impact of the lower rates to a $400,000 loan, RateCity said a CBA rate cut would reduce monthly repayments by $166.
Clive van Horen, the general manager of CBA, acknowledged the rate cuts are indicators of fierce competition in the banking industry and the result of changes in global money markets that allowed lenders to raise longer-term funds at a lower rate which they are now passing on to borrowers.
The Reserve Bank of Australia's policy on the overnight cash rate, now at a record-low of 2.5 per cent for almost one year, also influences the fixed rates of banks. More analysts have been forecasting since June further RBA rate cuts to stimulate the Australian economy.
Zoe McHugh, interest rate strategist of ANZ Bank gave a 35 per cent chance of another 0.25 percentage point cut by RBA by December 2014 and 50 per cent by February 2015.
Although the five-year loan is not so popular in Australia, the rate war is expected to spark more interest in this type of loan among Aussie borrowers. "We know many home owners are looking for certainty, whether they are investors or first home buyers, and NAB is offering that through market-leading fixed home loan rates," said NAB Retail Banking head Gavin Slater.
Besides the big 3, ME Bank and UBank, owned by NAB, also recently cut their longer-term fixed rates. Kirsty Lamont, director of Mozo, an interest rate comparison Web site, said more lenders would likely also chop their rates.