Banks expected to cut as RBA sits tight

HOME loan customers should look forward to lenders lowering interest rates out of cycle despite the Reserve Bank of Australia (RBA) staying on the sidelines.

HOME loan customers should look forward to lenders lowering interest rates out of cycle despite the Reserve Bank of Australia (RBA) staying on the sidelines with its official cash rate, says mortgage broker network 1300HomeLoan.

1300HomeLoan managing director John Kolenda said it was no surprise to see the RBA keep its official rate on hold at the near record low of 3.0 per cent following its March deliberations.

But Mr Kolenda said consumers can anticipate lenders reducing their variable rates while fixed rate home loan products are at an all-time low of 4.79% over two years as banks compete in a tight home finance market.

"Despite no move from the RBA this month, mortgage holders can expect a further lowering of interest rates by lenders out of cycle," he said.

"The banks have no issues at the moment with cost of funds and we can see them cutting their rates as they aggressively compete for home finance business.

"As the competition intensifies among lenders we could see rates reduced slightly by five to 10 basis points over the coming months.

"The major plus for mortgage holders is rates are unlikely to rise for the foreseeable future.

"This situation presents an excellent opportunity to pay down your mortgage."

Loan Market corporate spokesman Paul Smith said with positive economic indicators such as a 2.2 per cent inflation rate, an increase in home auction clearance rates and an increase in retail trade the RBA was justified to not adjust the cash rate this month.

"Home owners would certainly welcome lower repayments but the RBA has to consider the wider implications of lowering the cash rate and today they've continued with the same wait-and-see strategy displayed over the past two years," Mr Smith said.

Mr Smith said that there were several sectors and statistics the RBA was going to be watching closely over the next few weeks, whose performance would strongly dictate the direction of future interest rates.

"There are some patches of the economy that will continue to pressure the RBA to lower interest rates in the coming months, especially if the Aussie dollar continues to trade at its present value and if trade data softens," he said.

Mr Smith said lenders were continuing to forecast a lower cash rate in the next several months, indicated by fixed interest rates continuing to drop.

"Fixed rates remain nearly a full percentage point below most variable rates. This is strong evidence that the lending markets are anticipating a rate cut.

"Additionally, there's an affluence of reports that cost-of-funds pressures are easing for banks.

"It's very likely we will see some strong competition in the next few months from lenders looking to offer the lowest interest rates."

Mr Smith said it was still too early to expect lenders to adjust their variable rates without action from the RBA, unless it was a movement to pass on previous rate cuts or to fall in line with offerings from other banks.

"Even without a rate cut this month, there's certainly scope for both buyers and existing home owners to get better deals on home loans right now.

"It comes down to shopping around and making sure your home loan matches your personal circumstances and financial goals."

Originally published as Banks expected to cut as RBA sits tight