Home loan market competition heats up despite RBA leaving rates on hold

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Reserve Bank of Australia
An office worker walks past the Reserve Bank of Australia (RBA) building in central Sydney, Australia, March 1, 2016. Reuters/David Gray

There is growing competition in the home loan market despite the Reserve Bank’s decision to leave rates on hold at this year’s first meeting. Some lenders have slashed at least one variable rate home loan since December 2017, according to comparison site Mozo.com.au.

Competition in the home loan market heats up ahead of the autumn property season. Mozo director Kirsty Lamont said the latest rates decision is the 16th consecutive hold by the RBA, yet they have seen some lenders bucking the trend as they opted to slash variable interest rates.

“With housing prices in some of the nation’s capital cities continuing to slide, competition in the home loan market is intensifying as lenders try to ramp up their loan books,” Lamont said.

Mozo said its owner-occupiers that banks are chasing the hardest at the moment. Lamont explained that several lenders look to lure owner-occupiers and, in particular, first homebuyers with sharply priced home loan deals. Commonwealth Bank, for example, has launched a new 4-year variable introductory offer for first home buyers with a headline rate of 3.79 percent.

For an owner-occupier variable rate loan, the average cut is 20 basis points. Investors who pay principal and interest repayments get the biggest discounts from lenders, enjoying an average cut of 33 basis points.

Owner-occupiers who pay principal and interest have some muscle with lenders, according to Lamont. She added that it is time to call up lenders and push for the best possible deal, with a rate hike expected to come by August.

In its first meeting this year, the Reserve Bank of Australia has kept the official cash rate on hold. The country’s top economists gathered in Sydney's Martin Place and decided that interest rates will stay at the record-low levels of 1.5 percent. Slow wage growth, heavy losses felt by the ASX and the cooling of the housing market were believed to be among market forces considered for the decision.

But RBA governor Philip Lowe said the decision’s primary driver was the ever-strong Aussie dollar dampening inflation. "There was a broad-based pick-up in the global economy in 2017- a number of advanced economies are growing at an above-trend rate and unemployment rates are low," he said in a statement.

The ASX continued to trade down 173.3 points or 3 percent on Tuesday. Up to $55 billion has been wiped off the ASX on top of an estimated $33 billion loss.