The Commonwealth Bank cuts fixed-rate home loans to fire up sluggish lending

Australia’s biggest bank cuts home loan rate to fire up sluggish lending – with official figures showing 20 per cent plunge in lending since 2017

  • The Commonwealth Bank has cut its three, four, five year fixed-rate mortgages
  • Australia’s biggest bank could be forecasting more official interest rate cuts 
  • Sydney home lending has fallen by 20 per cent since 2017 property market peak 

Australia’s biggest bank and home lender has cut fixed-rate interest rates in a sign the official cash rate could fall to a new record low.

The Commonwealth Bank of Australia has slashed its three, four and five-year fixed rate mortgages for owner-occupiers.

The bank made its announcement on Tuesday afternoon as the Australian Bureau of Statistics revealed a government crackdown on interest-only loans had knocked home lending levels in the nation’s biggest state.

Australia’s biggest bank and home lender has cut fixed-rate interest rates in a sign the official cash rate could fall to a new record low. The Commonwealth Bank of Australia has slashed its three, four and five-year fixed rate mortgages for owner-occupiers

The ABS’s chief economist Bruce Hockman said that in New South Wales, owner-occupier lending was 20 per cent weaker than where it was in August 2017.

Since peaking in July 2017, Sydney’s median house price has plunged by 16.1 per cent to $880,594.

This followed an Australian Prudential Regulation Authority crackdown on investor and interest-only loans.

With Australia’s biggest property market, Sydney, suffering a severe correction, the Commonwealth Bank announced on Tuesday afternoon that it had cut its three-year fixed rate home loan by 10 basis points to 3.79 per cent.

The bank made its announcement on Tuesday afternoon as the Australian Bureau of Statistics revealed a government crackdown on interest-only loans had knocked home lending levels in the nation's biggest state (stock image)

The bank made its announcement on Tuesday afternoon as the Australian Bureau of Statistics revealed a government crackdown on interest-only loans had knocked home lending levels in the nation’s biggest state (stock image)

Four-year fixed rate loans were cut by 10 basis points to 4.09 per cent as the five-year rate was slashed by 30 basis points to 4.09 per cent.

The Reserve Bank of Australia’s official interest rates has been at a record low of 1.5 per cent since August 2016.

Australian house woes

Sydney, down 11.8 per cent, to $880,594

Melbourne, down 12.4 per cent, to $718,443

Brisbane, down 1.3 per cent to $538,544

Adelaide, up 0.7 per cent to $460,673

Perth, down 7.6 per cent to $467,783

Hobart, up 5.7 per cent to $493,237

Darwin, down 3.2 per cent to $478,191

Canberra, up 3.9 per cent to $669,911

Source: CoreLogic  Home Value Index for March 2019 showing annual movements in median prices for detached houses 

Banks usually adjust their fixed-rate mortgage rates in anticipation of what the RBA will do with the cash rate, and the move by the Commonwealth on Tuesday signals Australia’s biggest bank is eyeing a possible official rate cut in 2019.

Commonwealth Bank economists aren’t predicting any rate cuts this year.

Westpac and AMP Capital, however, are predicting two quarter of a percentage point rate cuts in August and November, which would take the cash rate to a new record-low of one per cent.

In February, the value of home lending for owner-occupiers rose by 3.4 per cent, as equivalent mortgages for investors rose by a more modest 0.9 per cent. 

Mr Hockman said these increases disguised a general weakness in Australia’s mortgage market.

‘Despite the rise in February, the longer term story is largely unchanged with new lending to households remaining subdued and well down on levels seen over the past five years,’ he said.

‘Lending for owner occupier dwellings in New South Wales is a good example of this broader story, with the series still down over 20 per cent from the peak of lending in August 2017, even after recording an 8.2 per cent monthly rise in lending commitments in February.

Banks usually adjust their fixed-rate mortgage rates in anticipation of what the RBA will do with the cash rate, and the move by the Commonwealth on Tuesday signals Australia's biggest bank is eyeing a possible official rate cut in 2019

Banks usually adjust their fixed-rate mortgage rates in anticipation of what the RBA will do with the cash rate, and the move by the Commonwealth on Tuesday signals Australia’s biggest bank is eyeing a possible official rate cut in 2019

‘Despite the rise in February, the longer-term story is largely unchanged with new lending to households remaining subdued and well down on levels seen over the past five years.’  

Falling house prices in Sydney and Melbourne are at least encouraging first-home buyers.

Their national share of the home lending market rose to a six-year high of 27.1 per cent in February.

The number of home loans to owner-occupier first home buyers rose by 1.8 per cent in February, slightly outpacing the 1.6 per cent increase in the number of loans to other owner occupiers.

CommSec chief economist Craig James said falling prices in Sydney and Melbourne had given younger buyers more choice. 

‘The falling home prices certainly are being embraced by first home buyers,’ he said.

‘And lower home prices, give cashed-up buyers more choice if loan size doesn’t change.’ 

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