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Variable home loans – the new battleground for banks

Variable home loans – the new battleground for banks

While fixed home loan rates are largely on the rise, an increasing number of lenders are cutting variable rates in a bid to win new customers.

RateCity.com.au data shows the number of variable rates under 2 per cent has risen from 28 to 46 in just two months – an increase of 68 per cent, despite no move to the cash rate since November 2020. 

While the number of variable rates under 2 per cent is on the rise, these rates are still, on average, significantly higher than fixed rates.

RBA data shows the average new customer variable rate is 2.72 per cent, while the average new customer fixed rate for 1 - 3 years is 1.98 per cent – a difference of 0.74 per cent.

Number of home loans under 2%

Pre-COVID

Jan-21

2 mths ago (July)Today
Variable

0

15

28

46

1 yr fixed

0

24

45

45

2 yr fixed

0

30

77

76

3 yr fixed

0

28

38

30

4 yr fixed

0

32

0

0

5 yr fixed

0

3

0

0

Source: RateCity.com.au. Note: pre-COVID is 1 March 2020, 2 months ago is 7 July 2021. Today is 7 Sept 2021.

Lenders that have changed at least one rate in the last two months

Lenders that have cutLenders that have hikedCurrent lowest Rate
Variable

44

6

1.77%

1 yr fixed

15

11

1.69%

2 yr fixed

22

14

1.79%

3 yr fixed

14

21

1.85%

4 yr fixed

4

19

2.14%

5 yr fixed

6

19

2.27%

Source: RateCity.com.au. Date range is 8 August to 7 September 2021 inclusive.

RateCity.com.au research director, Sally Tindall, said: “Since COVID, the battleground for the banks has been fixed rates. However, with record numbers of customers now locked in, some lenders are shifting their sights to variable rates.”

“Last month, Westpac cut its introductory variable to 1.99 per cent, and while this rate rises to 2.49 per cent after 2 years, it’s still well under its big four bank competitors,” she said.

“This sub-2 per cent rate from Australia’s second biggest bank is likely to put pressure on other lenders to re-think their variable rates. The last thing lenders will want is to start losing customers to Westpac.”

The latest ABS data shows refinancing is continuing to break new ground, hitting another record high in July with $17.22 billion in loans settled in just one month, according to the seasonally-adjusted data.

“The latest surge in refinancing is putting pressure on the banks to keep their rates competitive,” she said.

“Banks need to be winning new business, not losing it, if they want their loan books to keep moving in the right direction.

“Well over half of all mortgage holders are still on a variable rate. That’s a huge market of potential refinancers for the banks to target,” she said.

Lowest rates on the RateCity.com.au database

LenderRate
1 yr fixedGreater Bank

1.69%

2 yr fixedSt George, Bank of Melbourne, Greater Bank, Homestar Finance

1.79%

3 yr fixedUBank, 86 400

1.85%

4 yr fixedTeachers Mutual

2.14%

5 yr fixedFreedom Lend

2.27%

VariableReduce Home Loans

1.77%

Source: RateCity.com.au Note: Rates are for owner-occupiers paying principal and interest. Some LVR requirements apply. 

Lowest big four bank owner-occupier home loan rates

CBAWestpacNAB ANZ
1 yr fixed

2.09%

1.99%

2.09%

2.04%

2 yr fixed

1.99%

1.89%

1.99%

1.94%

3 yr fixed

2.19%

1.98%

2.08%

2.04%

4 yr fixed

2.29%

2.49%

2.24%

2.49%

5 yr fixed

2.99%

2.79%

2.49%

2.69%

Variable

2.69%

1.99% for 2 yrs then 2.49%

2.69%

2.72%

Source: RateCity.com.au. Note: Westpac's rates are for a loan to value ratio of up to 70%. 

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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