Several lenders have made significant cuts to both fixed and variable home loan rates, responding to market expectations of a potential interest rate reduction by the Reserve Bank of Australia (RBA) in May.
As economic conditions shift, lenders are adjusting their rates in anticipation of a possible cash rate cut, influenced by a mix of domestic and global factors. These developments have prompted notable changes in the mortgage market, with borrowers now presented with more favorable options.
According to Broker News, these rate adjustments reflect growing confidence that the RBA will take action during its upcoming May meeting.
Lenders Adjust Fixed and Variable Rates
In a move that signals a shift in the mortgage market, three lenders reduced their variable rates by an average of 0.07%, while eight lenders cut 159 fixed rates by an average of 0.2%.
Notably, Macquarie Bank led the charge, lowering its two- and three-year fixed rates to a market-leading 5.19%. For borrowers meeting specific sustainability criteria, such as green home standards, even lower rates are available.
The lowest variable rate for any loan-to-value ratio (LVR) now stands at 5.59%, offered by Pacific Mortgage Group, while the average variable interest rate for owner-occupiers paying principal and interest is now 6.51%.
Sally Tindall, Canstar’s insights director, commented,
No hikes – just cuts in a week where fixed rates continued to fall as lenders factored in the likelihood of a cash rate cut by the RBA on 20 May.
Anticipation of RBA Rate Cut
The reduction in home loan rates is being closely tied to expectations that the RBA will lower the official cash rate in its upcoming meeting on May 20.
Economists are predicting a 25 basis point cut, driven by softer economic indicators and global uncertainty, which have altered the risk outlook for the Australian economy. Despite the anticipated cut, most analysts agree that a larger-than-expected reduction is unlikely.
Looking ahead, March quarter CPI (Consumer Price Index) figures, due this Wednesday, will be critical in determining the RBA’s next move. Many economists expect trimmed mean inflation to land inside the central bank’s 2%-3% target band for the first time since the December quarter of 2021.
The turmoil abroad has, however, changed the game and flipped the risks – said Tindall. You can lock in a 25bp cut in May, even if the Q1 inflation data are a shade disappointing.
What’s Driving the Rate Cuts?
The reduction in rates by lenders is tied to growing market expectations that the RBA will proceed with the cash rate cut despite potential inflation data concerns.
Westpac Group’s Chief Economist, Luci Ellis, said that the RBA is almost certain to cut the official cash rate to 3.85% in May, regardless of the upcoming CPI figures. Ellis emphasized that the global economic turmoil has significantly shifted the risks for the Australian economy.
The only bank offering a lower fixed rate is Bank Australia with a three-year fixed rate at 4.94%. However, customers will need to meet specific criteria, including owning an all-electric, solar-panelled new build with a NatHERS rating of 7.5 stars or more to qualify for this rate – added Tindall.
