Banks in rate cut war to woo borrowers ahead of RBA meeting

Another big four bank has taken the axe to its fixed rate home loans, cutting by up to nearly half per cent just 11 days out from the next RBA meeting.

In a bid to woo borrowers, ANZ has slashed fixed rates by up to 0.4 percentage points for owner-occupiers, and up to 0.45 percentage points for investors.

That takes the bank’s lowest fixed rate to 5.39 per cent — the lowest two-year fixed rate of the big four banks.

ANZ has slashed its fixed rate home loan interest rate and more banks are expected to follow suit. Photo: Lisa Maree Williams/Getty Images.

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NAB has the lowest three, four, and five-year fixed rates, after cutting a month ago.

BOQ and Police Bank have the lowest fixed rates on the market at 4.99 per cent.

It follows in the footsteps of NAB reducing its fixed rate on April 11 and Macquarie Bank on April 24.

The RBA is widely expected to cut the official cash rate by as much as 50 basis points when it meets again on May 20.

The Reserve Bank of Australia is widely tipped to cut interest rates on May 20. Picture: Nikki Short.

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Canstar.com.au data insights director Sally Tindall said the fixed rate mortgage market was finally heating up, with a number of cuts in the past month from big and smaller lenders.

“The bank has one eye on the possibility of cash rate cuts, potentially as soon as 20 May, and another on locking new customers in, using a relatively competitive fixed rate as the hook,” Ms Tindall said.

“While a rate of 5.39 per cent isn’t likely to turn many heads, with variable borrowers across the country hanging out for further cash rate cuts, a fixed rate of 4.99 per cent might grab attention.”

Canstar Data’s Sally Tindall. Picture: supplied.

But it’s not just fixed rates that are being cut. The Commonwealth Bank this week dropped its digital variable interest rate to 5.84 per cent — on par with Westpac and ANZ, with only NAB having 6.19 per cent as its lowest.

Ms Tindall said a mortgage rate starting with a ‘4’ was a crucial threshold psychologically that could prompt some borrowers to change from a variable rate.

“If you are weighing up the option of fixed versus variable, understand what might suit your finances better and make sure you spend time shopping around for a competitive deal,” she said

“Ultimately, this rate slashing is good news for borrowers. Two of the big four banks have cut fixed rates within a month of each other and we expect more banks to follow suit, however, lenders will probably have to consider fixed rates in the ‘4’s if they want to get traction.”

Experts are tipped a 25 or 50 basis point interest rate cut on May 20. Picture: Gaye Gerard.

Deloitte Access Economics head Pradeep Philip said the latest inflation data for the March quarter left the door open for the RBA to cut rates this month.

“A May rate cut should not be viewed as the RBA declaring ‘mission accomplished’ in the fight against inflation,” Mr Philip said.

“Instead, it should be viewed as insurance against any collateral damage a trade war and geopolitical turbulence may cause the Australian economy.”

Deloitte Access Economics is forecasting a 50 basis point cut on May 20 followed by another 25 basis point cut this year, which would see the cash rate reduced by 100 basis points including the February cut.

Compare the Market economic director David Koch said another rate cut on May 20 would be “much-needed relief for homeowners buckling under the pressure of expensive loans and high interest rates”.

Mr Koch said it was unlikely interest rates would ever be as low as they were during the pandemic, but they should not be as high as they were now.

“Australian homeowners have worn the brunt of the war against inflation,” he said. “It’s high time we had some relief.”

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