Major banks intensify battle for borrowers with home loan rate cuts

As the pace of mortgage lending picks up amid the cash rate at a new record low, competition among the major banks for borrowers is intensifying.

The most recent June ABS housing finance data reported a larger than expected 2.7% rise in owner occupier home loan commitments over the month and a 12.7% rise of the past financial year.

This desire to grow mortgage lending was apparent in the swiftness with which three of the four major banks announced their interest rate decisions after the RBA cut the cash rate to 2.5% on Tuesday.

NAB’s announcement to pass on the full rate cut came just a few minutes after the 2.30pm RBA announcement with Commonwealth Bank and Westpac both revealing their decisions before 4pm.

In previous RBA announcements, the major banks have taken days to pass on rate cuts in some instances, while also not passing on the rate cut in full.

Only ANZ, hamstrung by its independent interest rate decision on the second Friday of every month, could not make an immediate announcement, though it did announce its decision to pass on the full rate cut earlier than usual today (the bank also passed on 27 basis points in May, the only major bank to offer more than the RBA's 25 basis point cut).

The eagerness of the major banks to announce their rate decisions was matched by their willingness to pass on the rate cut in full, or in the case of Westpac to pass on more than the 25 basis points with a 28 basis point reduction.

Westpac also announced that it had cut its one-year fixed rates by 0.45 percentage points to 4.99% and its two-year fixed loans by ­0.10 percentage points to 5.09%.

The Commonwealth Bank announced yesterday that it was also cutting the interest rate on its three-year fixed rate home loans by 10 basis points to an enticing 4.89% per annum.

Australia’s biggest mortgage lender also pledged to beat the advertised rates on one-to-five year fixed rate home loans from its major bank rivals and Westpac subsidiary banks St George, Bank of Melbourne, and Bank SA for the next seven weeks.

The pledge ends on September 30 – just one day before the RBA meets to decide on interest rates on October 1.

While economists expect the RBA to hold fire on September 3 just four days before the federal election, a rate cut on October 1 is an outside possibility.

The timing of announcements and the more generous fixed and variable offers of Westpac and Commonwealth Bank suggest funding costs have eased and competition is set to heat up.

NAB’s head of personal banking, Gavin Slater, said the bank was committed to “being competitive and providing certainty for customers in the current economic environment”.

His counterpart at Westpac Jason Yetton said the bank was “delighted” to offer the 28 basis point rate cut also pointing out that Westpac’s home loan rates are now at their lowest level since October 2009.

He added that the bank had seen increasing signs of buyers returning to the housing market and that "the latest interest rate reduction would help support both new purchasers and existing homeowners".

The Commonwealth Bank’s acting head of retail banking, Clive van Horen said customers also were “increasingly looking to lock in a competitive rate” adding that some of the bank’s fixed home loan rates are now at 20 year lows.

ANZ has also been keen to stress the growth of its home loan business, taking exception to an article which appeared in AFR Boss magazine criticising its super regional growth strategy at the expense of its Australian business

The bank’s spokesperson Paul Edwards issued a statement highlighting that APRA banking data shows that ANZ has grown its share of the Australian mortgage market for 13 consecutive quarters rising from 14.1% to 14.8% since December 2007.

However the size of the major bank's mortgage books and their reliance on home loans has been criticised by Don Argus, the former boss of NAB, who warned that the major banks were starting to resemble building societies and were putting the economy at risk in comments reports by the Australian Financial Review.