Market For Fixed Rate Mortgages To See Price Wars

Market For Fixed Rate Mortgages To See Price Wars

Australian banking major, National Australia Bank (NAB) says that it thinks competition in pricing for fixed rate home loans is set to escalate into a full blow price war, despite all four major Australian banks having raised interest rates for fixed rate mortgages this month.

In an interview with the Herald Sun, NAB’s head of mortgage lending, Steven Shaw, said he sees an intensification in price competition over the coming months as lenders compete for business,

“In the lead-up to the new financial year we’ll probably see more banks become competitive in the fixed-rate market,” he said. “I think the gap between variable rates and long-term fixed rates is going to narrow but it’s hard to say by how much.”

NAB is a price leader in fixed home loans for tenures with one, two, three and five years , whilst Wetspac leads with seven and ten year loans, according to data collated by market research firm Cannex, While the four major banks are relatively close to each other on pricing of their standard variable mortgages, a competitive gap has opened between them on fixed-rate products.

NAB’s aggressive pricing is likely to attract more investment borrowers, most of whom pre-pay interest on fixed loans to get tax deductions.

NAB’s Shaw said about a quarter of the lenders owner occupied customers opt to hold fixed rate mortgages.

ANZ for its part, has raised interest rates on home loans with the longest maturities of seven and ten years, signaling its intention that it either intends to scale back that type of lending or exit that type of business altogether.

ANZ has increased its 10 year fixed rate mortgage by 100 basis points, and its ten year rate now stands at 8.44 per cent, making it uncompetitive to its rivals with Westpac offering 6.99 per cent on its ten year mortgage and NAB offering 7.09 per cent.

ANZ offers the most expensive mortgages despite having cut its 1 year fixed rate by 54 basis points, after rivals increased their 1 and 3 year fixed rate mortgages this month. A spokesman would not elaborate on the reason its mortgage rates were more expensive than its main competitors.