Commonwealth Bank says recent falls in key financial market rates have helped it cut three- and four-year fixed mortgage rates, as competition continues to heat up in the home loan market.
After cutting five-year fixed rates to a record low last month, the country’s biggest bank has cut its key three-year rate by 15 basis points to 4.94 per cent, equalling NAB and ANZ.
Fixed rates move in line with investor expectations about future Reserve Bank moves, and are used by banks to target customer growth.
CBA’s general manager of home loans, Clive van Horen, said signs of economic weakness in recent weeks – including the unemployment rate hitting a 12-year high of 6.4 per cent – had led to a decline in the swap rate that determined fixed borrowing costs.
“The unemployment numbers that came out in Australia a few days back . . . that impacted the swap rate, so funding costs have dropped,” he told Fairfax.
The three-year swap rate has declined by about 10 basis points since a spike on August 6 after the shock jump in unemployment and an economic growth downgrade from the Reserve Bank.
Three-year loans are the most popular fixed rate product. The CBA has also cut its less commonly-used four-year rate by 50 basis points to 5.09 per cent.
As well as lowering mortgage rates, banks are also paying less to savers. The CBA is no exception.
Canstar analyst Mitchell Watson said since late last month the CBA three-year term deposit rate had fallen by 35 basis points to 3.6 per cent. Its four-year term deposit rate was down 30 basis points to 3.8 per cent.
Since CBA slashed its five-year loans last month, Mr van Horen said the share of new mortgage customers taking out a fixed-rate loan had increased from 13 per cent to 20 per cent. Of those new borrowers opting to fix, he said a record proportion had taken out five-year loans, which were being offered at 4.99 per cent.
“It’s well in excess of anything we’ve ever seen before because it is such a strong rate,” Mr van Horen said.
While the Reserve Bank had not moved the cash rate in a year, it said the actual rates paid by households had continued to fall in recent months due to lower fixed rates and larger discounts by banks.
Mr van Horen would not predict future interest rate movements but said he did not think fixed rates would rise in the “near term”.