Australia’s big four banks are restricting their biggest mortgage discounts as tight competition and record levels of refinancing eat into their profits.
The Commonwealth Bank on Friday increased interest rates on its packaged variable rate loans by up to 0.12 percentage points – the second rate hike on these loans over the past two weeks.
It’s not just Australia’s largest lender, either. Westpac this week hiked some of its variable rates, following similar moves by ANZ and National Australia Bank (NAB) last month, RateCity said.
The increases, which come in addition to the rate increases unveiled by the Reserve Bank, shows banks are reining in their best deals, RateCity research director Sally Tindall said.
“At the start of the RBA hikes, the big four banks cut new customer rates repeatedly in a bid to bring in new business. This aggressive discounting is now in reverse,” she said on Friday.
“After 10 cash rate hikes and steep increases to wholesale funding globally, the big banks are now quietly slipping their biggest discounts off the table.”
The Commonwealth Bank has pursued the largest rate hikes in the past two months, increasing its basic variable rate by 0.70 percentage points in late March and its packaged loans later on.
NAB hiked its basic variable rate by 0.20 percentage points in early March, while ANZ increased its offer by 0.21 percentage points in late March.
It comes after a massive refinancing binge that has seen record numbers of Australians call their banks to organise a better deal over the past six months amid a spate of RBA rate increases.
“While the refinancing boom has driven banks big and small to offer competitive new customer rates, the unprecedented volume of loans now refinancing is no doubt putting added pressure on profit margins,” Ms Tindall said.
“It’s likely to be getting too expensive for the banks to hand out discounts of this magnitude at these volumes.”
But while this might seem like bad news for those who have yet to renegotiate their loan, Ms Tindall said there’s still time for those in the middle of doing so to secure an old interest rate.
“Customers in the middle of negotiating a variable package loan with CBA shouldn’t just accept the rate rise,” she said. “Ask for the old rate. The bank is unlikely to want to lose you to a competitor and might be willing to make an exception for your business.”
Commonwealth Bank still has the lowest ongoing variable rate of the big four banks at 5.52 per cent, and 5.44 per cent with an offset account included.
Westpac, however, offers 5.24 per cent for two years as an introductory offer – it then reverts to 5.64 per cent.
Knife to fixed rates
While raising variable rates, the big banks are now also experimenting with taking a knife to fixed rates, Ms Tindall said.
It could be a sign they see a peak in the RBA’s rate hike cycle coming and are even anticipating rate cuts in the coming years as the economy slows and inflation cools off.
The Commonwealth Bank cut its three-year fixed rate for owner-occupiers on Friday, with RateCity saying 16 other lenders have also cut such rates over the past two weeks.
“That said, fixing is still very much on the nose. The latest ABS lending indicators shows just 5 per cent of new and refinanced loans opted for a fixed rate in February,” Ms Tindall said.
“With many economists predicting cash rate cuts in the next couple of years, it’s no surprise many Australians are deciding to keep their options open with a variable rate.”
