After using air miles and free gifts, the big banks are now cutting the price of home loans in a bid to lure customers away from second tier lenders.

On Thursday, ANZ became the big four’s lender with the lowest rate of all. Owner-occupier principal and interest rates on the bank’s basic home loan are down by a whopping 34 basis points to 3.65%. This rate applies with the ANZ Simplicity PLUS Home Loan with Special Offer Discount when borrowing less than 80% of the property value.

But don’t be fooled.  These are not THE lowest rates.  

Easy Street, the online banking arm of Community First, and and Greater Bank both have rates that are the equal lowest on the home loans list.

GreaterBank has a 3.49 per cent interest rate and a 4.49 per cent comparison rate.  And Easy Street, the online arm of Community First, is also at 3.49 per cent, but a comparison rate of 3.52 per cent (they have a $500 application fee).

In what is a naked grab for market share, the major banks are lowering rates on fixed interest home loans while industry minnows are forced to raise rates to maintain profitability. home loan comparison table

A home loan comparison table

Aletia Fysh, head of marketing at Easy Street, said:  “What we’re seeing here is the banks willing to do just about anything to win or retain business, including price matching or beating rates, which we’ve never seen to this extent before.”

Of course, the big banks are only interested in “quality” loans, leaving those with smaller deposits and low credit scores to the mercy of the markets.

Commonwealth Bank, the country’s largest mortgage lender, has cut lending rates on popular fixed interest products by10 basis points.

Westpac is offering “introductory” cuts of up to 50 basis points and throwing in free international trips. Westpac and its subsidiaries including Bank of Melbourne, St George Bank and Bank SA are specifically targeting borrowers’ growing fears about “security and stability” in today’s turbulent real estate and capital markets.

Borrowers are also eligible for enhanced Velocity frequent-flyer points with a $250,000 loan earning a couple 200,000 points, enough for a return flight to Hong Kong and a $1 million loan qualifying a couple to fly economy return to London from any Australian capital city.

The latest round of cuts by the nation’s first and second largest lenders will increase pressure on the other big banks to follow suit.

This comes as slower loan growth and rising international wholesale funding costs are forcing second-tier banks and small and medium-sized lenders to raise rates.

Bank of Queensland has increased its variable “economy” home loan by 29 basis points to 3.88 per cent, Tic:Toc Home Loans increased some of its variable rates by 12 basis points and AMO Group, a boutique borrower and broker, has jacked up owner occupier variable loans by 11 basis points and investor variable loans by 8 basis points.

But there are still plenty cheaper than the big banks.  In fact, 13 banks offer lower rates than ANZ.

And anyway, the big bank cuts may not last.

According to Moody’s Investors Service, the recent rate increases by 16 smaller banks will prompt major banks to eventually increase rates and preserve margins, despite pressure created by the banking royal commission to hold rates steady unless the Reserve Bank of Australia increases cash rates.

So buyers beware. Once they have you, the major banks are quite likely to raise their rates again.

Is this the perfect formula for your home loan

So how do you navigate the minefield of today’s home loan market?

Do you switch? Do you risk fixing in a home loan when you don’t know what the RBA or the banks are going to do next? Do you fix for five years? Or risk the roller coaster of 30 years at variable rates?

Former mortgage broker Rick Dalton, suggests that balance is the most important criteria.

“Take the average NSW Mortgage of $488,000. Lets lock away $400,000 on the best low %, no frills, low fees rate like Suncorp at 3.99% over 5 years interest only (dependent on loan to valuation ratio or lenders approval).

“We now know our repayments, feel good about the fact we don’t have to worry about any potential skyrocketing interest rates.

“Let’s put $88,000 in a bells-and-whistles loan at 3.68%. Even if the interest rates lift to 8% (God forbid!) it only affects a small portion of my loan. And that allows me the flexibility without the risk. Depending on my equity position or the potential capital growth of my home, with a variable option, I can access the equity in my property without disturbing my fixed loan.

“So our actually overall interest rate is around 3.9%, and we have flexibility.

“Ask your lending institution or broker for the best way to personalise your mortgage to suit your five year lifestyle plan.”

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