Fixed home loan rate war: St. George, Bank of Melbourne and BankSA cut rates

Three major Australian banks, St George, Bank of Melbourne and BankSA, cut fixed home loan rates by as much as 0.25 per cent, as the fixed rate war continues to rage.

The Westpac Group subsidiaries announced the cuts on Friday, becoming the latest of 104 lenders to cut fixed home loan rates since March 2020.

• St. George and Bank of Melbourne are now offering 2- and 3-year fixed rates from 2.59 per cent.
• BankSA is now offering 2- and 3-year fixed rates from 2.69 per cent.

These latest rate cuts are most likely designed to get new business on Westpac Group’s books, as home loan lenders across Australia battle it out with historically low fixed rates.

Since March, the average 2-year fixed rate has fallen 54 basis points from 3.18 per cent to 2.64 percent.

Average 2-, 3- and 5-year fixed rates from March – June 2020

Source: RateCity.com.au. Notes: Rates based on the average owner-occupier, principal and interest fixed rates from 1 March 2020 to 22 June 2020.

Interestingly, the lowest rates on offer from St. George and Bank of Melbourne are being reserved for homeowners with minimum LVRs of 60 per cent.

This means that those looking to switch to these competitive rates will need significant equity in their home, or first home buyers will need deposits of at least 40 per cent.

Put simply, these lenders are saving their lowest rates for the safest borrowers.

To fix or not to fix

If you’re a first home buyer, or if you’ve been on a variable home loan and are considering refinancing, you may be wondering if now is the right time is to fix?

With Australia entering its first recession in almost 30 years, we’re certainly treading uncertain economic waters. However, a general rule of thumb is that you cannot predict the bottom of the market.

While fixed rates are at a record low, this may change in the long term as some banks have reversed the trend by hiking their rates.

According to RateCity research, 6 banks actually hiked their fixed rates in June, including ING, which previously offered the lowest fixed rate in the market (2.09 per cent).

If you believe that a good fixed rate offer is on the line, there are a few things to consider before fixing:

• Certainty in repayments. A fixed home loan rate means you’ll be making the same consistent repayment each month until the end of the fixed period. If you’re the type of borrower who likes a stable budget, then a fixed home loan may suit you.
• Protected from cash rate hikes. If the RBA were to raise the cash rate, your variable interest rate would follow suit. Fixing your home loan is one way of ensuring you’re not at the mercy of the market.

• Revert rates. Once the fixed rate period ends, your home loan may automatically switch to your lender’s variable interest rate, which is typically much higher.
• Miss out on cash rate cuts. While a fixed rate may protect you from an increased cash rate, it does mean you miss out on any potential further cuts. You may end up stuck on a fixed rate that’s higher than the lowest variable rates.

If you’re sure about fixing your home loan, you’ll want to make sure you do your research. Don’t just look at the interest rates, but ensure you compare potential fees and features. And as noted above, you may need to ensure you have a large deposit or some equity up your sleeve before you can qualify for the lowest home loan rates on offer.

Here are a range of the lowest fixed rate home loans on the RateCity database:

Lowest fixed owner-occupier home loan rates

Source: RateCity.com.au. Notes: Data based on lowest owner-occupier, principal and interest fixed rates, accurate as at 22/06/2020.

Big four bank lowest owner-occupier fixed rates

Source: RateCity.com.au. Notes: Data based on lowest owner-occupier, principal and interest fixed rates, accurate as at 22/06/2020.

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