A Big Four bank has slashed fixed mortgage rates in a strong sign the Reserve Bank could start cutting rates early next year.
National Australia Bank has cut its two-year fixed rates by 55 basis points to 6.04 per cent.
One-year fixed rates have been trimmed by 40 basis points to 6.29 per cent while three-year fixed rates have been reduced by 10 basis points to 5.89 per cent for owner-occupier borrowers with a 40 per cent mortgage deposit.
Canstar noted 37 lenders had cut their fixed rates during the past month, including Macquarie Bank which offers a very competitive 5.39 per cent fixed rate for two to five years.
SWS Bank now offers a 4.99 per cent fixed rate for three years, making it the first mortgage rate this year starting with a ‘four’.
Australia’s banks are now offering fixed mortgage rates that are more competitive than variable rates, with financial markets expecting four RBA rates cuts in 2025 that would shave $5,000 a year off average mortgage repayments.
The Reserve Bank’s September meeting minutes were also released on Tuesday, hinting that rate cuts are likely in 2025.
‘On the other hand, members observed that there were scenarios in which future financial conditions might need to be less restrictive than they were at present,’ it said.
A Big Four bank has slashed fixed mortgage rates in a sign the Reserve Bank could start cutting rates early next year
Underlying inflation of 3.4 per cent, in the year to August, was still well above the RBA’s 2 to 3 per cent target but the Reserve Bank minutes hinted price pressures could ease at a faster pace than anticipated.
‘One such scenario was if the economy proved to be significantly weaker than expected and this placed more downward pressure on underlying inflation than expected,’ the minutes said.
‘Another scenario was if inflation proved less persistent than assumed, even without weaker-than-expected activity.
‘This could occur, for instance, if rent inflation fell more rapidly, falling petrol or other commodity prices materially reduced firms’ cost base, or the decline in discretionary spending flowed through materially more quickly to services inflation.’
Canstar data insights director Sally Tindall said fixed rate mortgages were becoming more competitive as wholesale funding costs fell.
‘NAB might be the latest bank to cut fixed rates but it certainly won’t be the last,’ she said.
‘Other lenders – both big and small – are likely to cut fixed rates in coming weeks as competition in this space starts to finally defrost.’
National Australia Bank has cut two-year fixed rates by 55 basis points to 6.04 per cent
The 30-day interbank futures market sees the cash rate falling from an existing 12-year high of 4.35 per cent to 3.35 per cent by late 2025, for the first time since March 2023.
Should the RBA cut rates four times as predicted, a borrower with an average $636,208 mortgage would see their monthly repayments fall by $409 or $4,908 a year.
This would occur as monthly repayments dropped to $3,609, down from $4,018.
RBA Governor Michele Bullock last month confirmed a rate rise wasn’t considered at the Reserve Bank’s September meeting, which makes rate cuts in early 2025 more likely.
Australia’s annual economic growth pace of 1 per cent is already the weakest since 1991, the year of a recession, when the effects of the pandemic were excluded.
The Reserve Bank’s 13 interest rate rises in 2022 and 2023 were the most aggressive since the late 1980s.
The September meeting minutes, however, didn’t completely rule out another rate rise, even though the US, UK, Canada, European Union and New Zealand have this year all cut interest rates.
The Reserve Bank’s September meeting minutes were also released on Tuesday, hinting that rate cuts are likely in 2025 (pictured is Governor Michele Bullock)
‘Members observed that monetary policy could need to be tightened, even if the board’s judgements about consumption, the labour market and supply potential prove correct, should present financial conditions turn out to be insufficiently restrictive to return inflation to target,’ it said.
The Westpac-Melbourne Institute consumer sentiment index for September has risen by 6.2 per cent to a two-year high.
But the score of 89.8 points was still below the 100 level where optimists outnumber pessimists.
Westpac’s head of macro forecasting Matthew Hassan said the Reserve Bank was likely to more explicitly signal its intention to cut rates at its November meeting, even if they remained on hold again next month.
‘While the cash rate target is likely to remain unchanged for the remainder of the year, we expect the board to make some significant changes to its messaging, moving away from the “hawkish hold” it has communicated in recent meetings,’ he said.
NAB, ANZ and Westpac are expecting the Reserve Bank to cut interest rates in February, while the Commonwealth Bank is forecasting a December rate cut.