Balloon with percentage symbol
Canstar recommends fixed rates Source: Karolina Grabowska from Pexels.
  • CBA has cut its one and two-year fixed home loan rates in response to NAB and Westpac
  • However, CBA also raised its four-year fixed home loan rate
  • Other big four banks are likely to follow, pricing in cash rate hikes expected in 2024

Bowing to market pressure from rivals NAB and Westpac, the Commonwealth Bank of Australia (CBA) has cut its one and two-year fixed home loan rates.

With three out of the four big banks cutting their short-term fixed rates, this leaves ANZ’s rate uncompetitive and hence is likely to follow suit very soon.

CBA announced a 0.20% reduction to 1.94% per annum on new two-year fixed-rate home loans for owner-occupiers paying principal and interest, making this the bank’s lowest ever advertised home loan rate.

“We know that customers are looking to lock in the certainty of fixed rates with around 40 percent of new customers fixing their loans to take advantage of the current record low rate environment,” said Michael Baumann, Executive General Manager, Home Buying.

“These changes allow homeowners and investors to take advantage of our lowest ever fixed rates.”

Additionally, CBA has also cut its three-year fixed-rate home loans for investors by 0.30% to 2.39%, making this the bank’s lowest ever advertised investor rate.

Big four banks – lowest owner-occupier rates (2-year fixed)

1.94% 1.79% 1.89% 2.04%

Source: Adapted and reproduced from RateCity

However, another significant change was the CBA being the first of the big four banks to raise its four-year fixed home loan rate.

The Reserve Bank of Australia (RBA) is a major force driving this decision, with Governor Philip Lowe said they are committed to full employment, and with inflation currently below the target rate of 2-3%, cash rate hikes are not to be expected until 2024.

It is clear that the CBA is taking these cash rate hikes into account, thinking the RBA will stick to their plan, and therefore pricing in its four-year fixed rate higher in line with this expectation.

Sally Tindell, research director at RateCity said the other banks are likely to follow CBA’s decision to hike their four-year fixed rates.

“Governor Lowe has repeatedly said the first round of cash rate hikes wouldn’t be until at least 2024, but that’s only three years away.

“Someone who fixes their rate for four years today could very well see variable rates go up within that time, provided the economic recovery stays on track.”

This interest rate price war is a crystal clear indicator of the RBA’s influence with their commitment to easy monetary policy to tackle unemployment.

House prices have continued to increase these past few months, rising at their fastest rate in 17 years, despite slow migration and a weak labour market.

With the cash rate at a historically low level and the major banks evidently responding to this change, the housing boom is set to continue. For now.


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