CBA reignites mortgage wars with lower rates for new borrowers
By Sumeyya Ilanbey
The Commonwealth Bank of Australia has cut interest rates on home loans for new borrowers and reignited the mortgage wars, days after the nation’s largest lender was criticised for punishing customers by slashing the rate on term deposits.
CBA on Friday moved to cut the variable mortgage rate for owner-occupiers by 0.2 percentage points to 6.49 per cent if they have a 20 per cent deposit, and shave 0.7 per centage points off a three-year fixed rate to 6.04 per cent.
The Commonwealth Bank has cut interest rates for new borrowers. Credit: Natalie Boog
“As part of our ongoing review of our interest rates and market conditions, we have today reduced the interest rates across some of our fixed and variable home loan products for new borrowings,” a CBA spokeswoman said.
CBA, ANZ and NAB all cut term deposit rates by up to 80 basis points in recent days, raising the ire of federal Treasurer Jim Chalmers and Labor MP Jerome Laxale, who threatened to refer the banks to the competition watchdog.
Westpac and NAB cut their fixed loan rates in the past month, with Westpac slashing 0.7 percentage points off a three-year fixed loan for owner-occupiers to 6.29 per cent and NAB shaving 0.6 percentage points to 5.99 per cent. In a statement, ANZ said its home loan rates were under review and its rates remain competitive.
However, most new mortgage customers are borrowing on variable interest rates, with CBA’s move threatening to reignite the mortgage wars, which had recently stabilised after intense competition.
The cuts could put at risk banks’ net-interest margins, which compares funding costs with what it charges for loans and is a core measure of profitability.
CBA’s margins rose one basis point to 1.99 per cent in the past financial year, according to the bank’s full-year results released earlier this month. Westpac’s net-interest margin rose three basis points to 1.9 per cent in the June quarter, while NAB in its trading update this week reported its margins were “stable with small reductions from lending competition and deposit mix”.
Their moves on interest rates come ahead of a parliamentary grilling next Thursday, when CBA chief Matt Comyn and Westpac chief Peter King will appear before the House of Representatives standing committee on economics reviewing Australia’s four major banks. NAB’s Andrew Irvine and ANZ’s Shayne Elliot will be questioned next Friday.
Jarden banking analyst Jeff Cai said CBA was the last of the four major banks to cut interest rates for new borrowers and boost their credit growth.
“All the banks are operating by looking at both sides of the balance sheet,” Cai said. “Given they’re easing on the deposit side in terms of rates, that gives them more capacity to compete harder on the mortgage book.”
Cai said that equilibrium would reduce the impact of rate cuts for borrowers on the bank’s bottom line, and added he did not expect the fierce levels of competition seen in recent years to return.
“It will be more small increases in the mortgage competition … rather than going back to what we have seen.”
Despite the banks’ moves on interest rates for customers and markets pricing in a rate cut by December, the Reserve Bank of Australia has held the cash rate steady at 4.35 per cent since November and RBA governor Michele Bullock sought to kill off those hopes.
After the bank board’s latest two-day meeting this month, Bullock said the board’s current thinking did not align with the financial markets’ expectations of a rate reduction at the RBA’s December meeting or earlier.
She said predictions of “near-term” cuts were overblown, even as the RBA expects economic growth to slow to just 0.9 per cent over the 12 months to June and inflation to fall to 2.8 per cent by the middle of next year.
“I understand that this is not what people want to hear. I know there are many households and small businesses that are struggling with interest rates where they are,” Bullock said this month.
“But really the best thing we can do, and I’ve said this before, the best thing we can do is to bring inflation back down to target because we can’t let inflation get away.”
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correction
A previous version of this article incorrectly stated that Westpac had cut term deposit rates by up to 80 basis points. The error has been fixed. Westpac has not cut its term deposit rates.