The November Reserve Bank decision to lower interest rates to a new historical low would be expected to generate rate reductions across all lenders. The response from lenders so far has been mixed, several second-tier lenders have dropped variable rates however this seems to be common for second tier lenders to so in order to build their loan books. The big four have responded with reductions in mostly fixed rate loans in 2-to-4-year terms. The big four appear to be attempting to shore up their loan books in the face of competition, reduction in profit and expected bad debts post COVID.
What should borrowers do?
1. It is always prudent to check your rate, preferably with a broker who has access to most of the available lending market.
2. Analyse whether a small rate reduction is worth moving your loan when you consider any discharge fee, account fees and offset account savings. Once again, a broker can demonstrate this to a client.
3. Fixed rates! Very carefully consider long term fixed rates. Whilst rates can theoretically only be reduced once more there is plenty of scope for increases although with government debt and quantitative easing rate increases are unlikely for several years. What is a concern with fixed rates is the inability to make substantial extra repayments with most loans (over $20,000 additional per annum) and the costs associated if you sell the property and payout the loan.
Current rates: Variable 2.19% 2 year introductory 2.29-2.49% variable for owners occupiers, Fixed from 1.94% fixed for 4 years, owner occupied.