Westpac cuts new customer variable rates, as loyal borrowers face 8th rate hike

Westpac has today cut the rate on its basic home loan for new customers, as existing variable borrowers face their eighth rate hike this year.

Australia’s second largest bank has dropped the rate on its Flexi First Option home loan by 0.10 percentage points for owner-occupiers and investors who are new Westpac customers. Its subsidiaries, St George, Bank of Melbourne and BankSA have also cut rates on their basic loans by 0.10 percentage points.

As a result, the bank’s lowest variable rate after the December RBA hike takes effect will be 4.64 per cent for the first 2 years, rising by 0.40 percentage points thereafter. To qualify for this rate, customers will need to be an owner-occupier and already own at least 30 per cent of their property, based on today’s values.

Westpac is the third major bank to cut new customer variable rates in just over a week, after rival CBA cut its basic rate on Friday, and ANZ cut its lowest rate last Wednesday.

Today’s changes – Westpac Flexi First Option (LVR 70% or less)

Source: RateCity.com.au. Note Westpac’s December RBA hike takes effect on 20 December.

Loyalty tax grows as the refinancing boom continues

CBA, Westpac and ANZ are not the only banks discounting new customer variable rates. Since the RBA hikes began in May, analysis from RateCity.com.au shows 38 lenders have cut at least one variable rate for new customers.

During this time, the majority of existing variable rate customers will have seen their rates rise by 3 percentage points, once the December RBA hike takes effect.

Big four banks – how much more existing customers are paying after 1 year of loyalty

If someone took out one of the big four banks’ lowest variable rates in December 2021 – just 12 months ago – they would now be on a rate that is, on average, 0.44 percentage points higher than what is on offer to new customers, almost two standard RBA hikes more.

On a $500,000, 25-year loan today this difference could equate to an estimated $2,210 extra in interest over the next year.

Existing customer vs new customer variable rates (post-Dec hike)

Assumes borrower took out the bank’s lowest rate loan in Dec 2021 and has not negotiated since

Source: RateCity.com.au. Rates are for owner-occupiers paying principal and interest on the big four banks’ lowest variable rates. New customer rate includes Westpac’s introductory rate and CBA’s package loan rate. Rates are effective 16 Dec and 20 Dec for Westpac.

RateCity.com.au research director, Sally Tindall, said: “Westpac has followed its big bank rivals, CBA and ANZ, in cutting its basic variable rate to tempt borrowers into jumping ship.”

“Westpac has the lowest variable rate out of the big four banks, but, buyers beware, it only lasts for two years before increasing by 0.40 percentage points,” she said.

“Australia is going through a refinancing boom that is set to continue in 2023 as borrowers come off their fixed-rate loans. It’s no surprise the banks are undercutting each other to offer the most attractive rates to potential new customers.

“Since the start of the rate hikes, most variable borrowers have seen their rates rise by 3 percentage points, yet 38 lenders have cut variable rates for new customers.

“The reality is, if you haven’t refinanced your loan in the last 12 months, or at the very least, haggled with your bank for a discount, chances are you’re overpaying on your mortgage.

“Give your loan the loyalty test by checking what your lender is advertising on the exact same loan for new customers. If you haven’t asked for a discount this year, pick up the phone and potentially pocket some savings ahead of Christmas,” she said.   

The 5-minute loyalty test:

• Look up what rate you’re paying and check how much of your loan you’ve paid down.
• Check what your bank is offering new customers for the exact same loan.
• See what other lenders might be willing to offer factoring in how much of your home you own.
• Pick up the phone and haggle.

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