Variable home loan rates are dropping, why now?

Photo by Karolina Grabowska.

A number of home loan lenders have begun lowering variable rates, bucking the trend we’ve seen in recent months of focusing cuts exclusively on fixed options.

Tic:Toc, an online lender backed by Bendigo and Adelaide Bank, cut variable rates by 15 basis points this week. Its Variable Home Loan now offers owner occupiers rates as low as 2.04% p.a. (2.05% p.a. comparison rate*).

Macquarie Bank made similar moves, reducing variable rates for owner occupiers by 15 basis points. Rates for the Macquarie Basic Home Loan now start at 2.34% p.a. (2.34% p.a. comparison rate*) for borrowers with an LVR below 60%.

QBANK, Athena, MyState Bank, Citi, Aussie and Bank of Sydney have also adjusted variable rates downwards over the month.

Variable rates tend to move in line with the cash rate, which has remained unchanged since November 2020. While out-of-cycle cuts aren’t exactly common, lenders will occasionally shuffle their rate sheets to remain competitive.

“The housing market is roaring ahead, and people are very interested in investing in property because other investment options may not be so attractive for them,” said Mozo’s banking expert Peter Marshall.

“A great way to make sure you get new customers is to have low rates. So the lenders that are shifting their rates are being very strategic and trying to get as much business in the door while things are running hot as they possibly can.”

Of course, borrowers need to be confident they will be able to afford their repayments when rates do go back up, particularly those who have taken out high LVR loans.

“These are variable rates, and when the rate cycle turns - and that may not be terribly far away - people will find that their lenders pass those rate increases onto them,” Marshall said.

What about fixed rates?

Since banks began slashing away at fixed rates last year, fixed mortgages have exploded in popularity, now making up one third of new home loan commitments instead of the usual 15%. 

But there are signs that things are already beginning to slow down, with a number of banks hiking fixed rates in response to rising funding costs.

“Last year, the RBA made a large amount of funding available to banks at a discounted rate for up to three years. That facility is being terminated next month, so I think that the 1 to 3 year rates that are around right now won’t be for much longer,” said Marshall.

“There are also signs that inflation is building around the globe for a variety of reasons, so it’s hard to see how the current low fixed rate environment can be sustained.”

So far, banks have limited their rate hikes to longer terms. Most recently, NAB increased 4 and 5-year rates by up to 25 basis points. Its packaged 5-year option now sits at 2.49% p.a. (3.76% p.a. comparison rate*).

This was the story throughout April, when 15 lenders in our database increased at least one 4 or 5-year fixed home loan rate. As more lenders follow suit, we could see the popularity of fixed rate mortgages begin to dip.

According to Marshall, this could be exactly what lenders are aiming at. Having more customers signed up to variable rate loans than fixed ones spells good news when rates do finally go up.

“The fact that fixed rates are going up while variable rates are being pushed down even further is a good sign that lenders are now trying to hook people in with variable rates,” he said.

For more information on property and lending trends, head over to our home loan statistics page. And if you’re in the market for a home loan, visit our home loan comparison page, or browse the selection below.

Home loan comparisons on Mozo - last updated 13 August 2022

Search promoted home loans below or do a full Mozo database search . Advertiser disclosure
  • Variable Home Loan 70

    interest rate
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    Initial monthly repayment
    3.10% p.a. variable
    3.12% p.a.

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  • Unloan Variable

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    Initial monthly repayment
    3.14% p.a. variable
    3.06% p.a.

    For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.

  • PAYG Home Loan

    Owner Occupier, Principal & Interest, LVR<80%

    interest rate
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    Initial monthly repayment
    3.29% p.a. variable
    3.33% p.a.

    Low variable rate. Ideal for new home buyers or refinancers. Unlimited additional repayments. Unlimited free redraw. Application completely online. Optional 100% offset can be added for $120 p.a.. 20% deposit required.

  • Celebrate Variable Home Loan

    <60% LVR, Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    3.79% p.a. variable
    3.79% p.a.

    Fast and efficient online application. Automatic discounts as loan is paid down. Free extra repayments and redraw facility. Zero fees. Min 40% deposit required.