Mozo Money Moves: Fixed rate cuts as high as 0.56%, as mortgage wars come to an end.
This week’s edition of Mozo Money Moves is coming to you a day early, due to the public holiday tomorrow, and despite the fact that January is a notoriously quiet month for interest rate moves, there seems to be a few trends emerging.
Mozo banking and rates expert Peter Marshall has been looking at rate changes, and advises that “the home loan market in Australia is now shifting away from the intense competition of the mortgage wars.”
Despite the market prediction that there would be a surge in refinancing as home loan holders fell off the mortgage cliff in late 2023, the latest Lending Indicators from the Australian Bureau of Statistics (ABS) show that despite a small uptick in owner occupier refinancing in November 2023, we are far from the July peak.
“Banks are withdrawing cashback offers, fee waivers, and other incentives and the expectation of a post-cliff surge in refinancing has dwindled,” Marshall explains.
“It now looks like lenders are now redirecting their efforts towards enhancing profit margins in the face of potential rate cuts at the end of 2024.”
Home Loan Moves
Fixed Rate Moves
Despite the drop in competition between banks for mortgages to add to their loan books, fixed rates are continuing to show a downward trend and longer-term fixed rates are being cut at a faster pace than their shorter-term counterparts.
According to the Mozo database, 13 lenders have cut fixed rates in January, and while most have been small cuts of 10-15 basis points across the board, some are hiking some terms by more than half a percent.
“The downward trend for fixed-rate options is making these home loan products increasingly attractive for mortgage holders,” Marshall says.
“But borrowers need to consider the impact of locking in a comparably “low” rate now when the RBA is predicted to start cutting the cash rate later this year.”
Most lenders who are cutting fixed rates are doing so across all terms, but what’s notable is that the biggest fixed-rate move of the week was for 2 and 3 year terms.
While various lenders have initiated cuts ranging from 10 to 30 basis points across terms, Macquarie has made substantial cuts, slashing fixed rates for three year terms by 0.56% and two year terms by 0.50%.
| Home Loan | Fixed Rate Term | New Fixed Rate (p.a.) | Change | Comparison Rate * (p.a.) |
| Basic Home Loan | 1 Year | 6.49% | -0.26% | 6.34% |
| 2 Years | 6.15% | -0.50% | 6.30% | |
| 3 Years | 6.09% | -0.56% | 6.27% | |
| 4 Years | 6.25% | -0.44% | 6.31% | |
| 5 Years | 6.25% | -0.50% | 6.30% | |
| Offset Home Loan | 1 Year | 6.49% | -0.26% | 6.57% |
| 2 Years | 6.15% | -0.50% | 6.52% | |
| 3 Years | 6.09% | -0.56% | 6.49% | |
| 4 Years | 6.25% | -0.44% | 6.53% | |
| 5 Years | 6.25% | -0.50% | 6.53% | |
| Source: Macquarie Bank fixed rate changes effective 25 January 2024, for Owner Occupier, Principal & Interest, LVR 70-80% loans. | ||||
| *WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years. | ||||
But why are these banks lowering two and three year terms specifically? Marshall says it could be influenced by the end of the mortgage wars, and the focus on increasing profits.
“Lowering two and three year fixed rate terms helps banks attract borrowers to increase profitability over the long-term as future cuts could mean fixed rates surpass variable rates,” Marshall continues.
“Even if cuts don’t come within that time frame or rates actually increase, the interest rate loss the bank is exposed to is only two or three years, so the risk is fairly limited.”
Variable Rate Moves
When it comes to movement in variable home loan rates, the trend has been predominantly up, averaging at about 10-15 basis points, and mostly from smaller lenders. However, there are some lenders hiking by up to 30%.
Interestingly, Auswide was the only bank to hike twice in a row, in both December 2023 and January 2024, taking their headline variable rate from 5.99%p.a. to 6.09%p.a., despite no movement in the cash rate.
Marshall says it's a well-timed reminder for borrowers to keep an eye out for any rate movements from their home loan lenders, regardless of whether the RBA meets or moves the cash rate.
“Borrowers should be checking their rates regularly, as banks are continuing to make these rate adjustments despite no movement from the RBA.”
“Though they may seem minor, small rate changes on a six or seven figure home loan can equate to thousands of dollars more in interest you’re paying in the long run.”
Mozo Insights:
- Wondering how much your repayments will increase by when your fixed term ends? This fixed rate ending calculator does the hard work for you.
- Which cities have the lowest median property prices? Evlin Dubose dives into the latest house prices to calculate deposit and repayment costs.
- As house prices increase along with rates, are Australians relying on the Bank of Mum and Dad to get onto the property ladder?
As a part of Mozo’s commitment to making your money count for more, each month we “roundup” the rate changes, key banking trends and money moves in the Australian personal finance market.
If you’d like to see the analysis in full once it’s released, you can subscribe to receive the Mozo Banking Round Up here.
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