The Reserve Bank of Australia might have started increasing the cash rate, leaving many homeowners feeling the pinch of higher repayments. But Australia’s home loan wars show no signs of abating, with many lenders competing hard for new business.

The latest battleground?

Well, while fixed rates have been creeping up for months, and are likely to continue doing so, many lenders are pricing significant discounts on their variable-rate loans.

Variable-rate loans are the most competitive around

Competition in Australia’s mortgage markets is intense, with over $33 billion worth of home loans approved in March 2022 alone, according to the most recent data from the Australian Bureau of Statistics.

Many lenders are eager for a larger slice of the pie, even if it means putting a squeeze on their net interest margins.

Net interest margins are a key measure of profitability for financial institutions as they refer to the difference between borrowers' interest payments and the profit the lender makes on the loans.

Shayne Elliot, chief executive of ANZ, recently said that rising interest rates could lift the bank’s revenues by $800m over the next 12 months and $2.3bn over three years. So it would seem there’s plenty of room for lenders to offer discounts on their variable-rate products.

As a result, variable-rate home loans are some of the most competitive around – with rates starting in the low 2s, despite the Reserve Bank’s hike.

Contrast that with fixed-rate loans of two years and more, whose interest rates currently start in the high 3s or low 4s.

Is now the time to take advantage? 

The RBA has flagged more rate hikes are on the horizon, with Commonwealth Bank predicting the cash rate will reach 1.35% by December before levelling out at 1.60% in mid-2023.

Those increases will, of course, lead to an increase in variable home loan rates. So, you might be wondering, is it better to fix?

Well, everyone’s home loan needs are different, so the answer depends on your individual financial situation.

That said, many of our clients are making the opposite move – and taking advantage of the lower variable rates around, rather than paying higher fixed rates from day one.

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