Australian homeowners with mortgages are set to see interest rate relief in coming days.
Two more banks have dropped interest rates into the 4pc range on Friday with one delivering a shock new low, as the market prices in a surprise double rate cut come Tuesday.
Canstar’s database showed Bank of Queensland slashed its lowest fixed rate to 4.89 per cent for two years – the new lowest standard home loan rate in the market.
Canstar.com.au data insights director Sally Tindall said there weare 18 lenders offering at least one fixed rate under 5 per cent now on their database, but just one lender – Police Credit Union – with a variable rate under this mark.
“This rate cut, which is for owner-occupiers with a 20 per cent deposit, is additional confirmation lenders are pricing in further RBA cash rate cuts as they compete for new business with headline grabbing rates,” Canstar said.
ME Bank was the second major lender to drop interest rates below the 5 per cent mark Friday, with its new 4.99 per cent two-year fixed rate now live, and Macquarie Bank moved below the 5pc range earlier this week.
Compare the Market economic director David Koch expected more banks to follow “with a four in front” in the days and weeks ahead.
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Compare the Market analysis of rate cut impacts. Source: Compare the Market.
The moves come as the market priced in a shock double rate cut come Tuesday with ASX’s RBA Rate Indicator flagging market expectations of a cash rate cut from 3.85 per cent to 3.35 per cent.
“The ASX 30 Day Interbank Cash Rate Futures August 2025 contract was trading at 96.315, indicating a 51 per cent expectation of an interest rate decrease to 3.35 per cent at the next RBA Board meeting,” it said – indicating a 0.5 percentage point cut to the cash rate.
Mr Koch said a 0.50pc rate cut “could represent a saving of $210 on monthly repayments – or $2,520 over a year – for someone with an average $660,000 loan” or about $193 a month for those on $600,000 to as much as $322 a month for a $1m loan.
“Some banks have pre-emptively reduced their fixed rates in anticipation of the August decision. Depending on their appetite to attract new customers, and where they think rates are headed, they may readjust them again.”
The ASX market pricing of a 0.5pp cut goes further than expectations of all four of Australia’s biggest banks, with CBA, NAB, Westpac and ANZ all picking another 0.25pp cut on Tuesday.
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Compare the Market economic director David Koch. Picture: Jono Searle
However, if the RBA cuts the cash rate on Tuesday, more lenders could drop variable rates under this mark, Mr Koch said.
Rate cuts of 0.25pc in February and May 2025 would have reduced monthly repayments on a $600,000 loan by around $193. Another 0.25pp cut in August could push that figure to $307 – a reduction of $3,684 over a year, he said.
The Finder RBA Cash Rate Survey, released Friday, has 91 per cent of 34 experts and economists surveyed expected a single rate cut come Tuesday, bringing it to 3.60 per cent.
Queensland Investment Corporation’s Matthew Peter’s reasoning was “”falling inflation, softening labour market – no remaining hurdles for a rate cut” while Oxford Economics Australia’s Sean Langcake said “we’ve seen more evidence that the labour market is softening. Moreover, the Q2 CPI did not contain any red flags around core inflation pressures. This paves the way for an August rate cut”.
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Reserve Bank Governor Michele Bullock is under greater pressure to put in a rate cut on Tuesday. Picture: Christian Gilles / NewsWire
Graham Cooke, head of consumer research at Finder, said if banks pass this on in full, an Aussie homeowner with a $500k mortgage will save $2,884 per year compared to what they were paying at the start of the year before the RBA started cutting the cash rate.
“If the RBA doesn’t cut next week, they are risking an all-out attack on their legitimacy in the eyes of many homeowners. Last month’s decision to hold shocked the market, and we are now seeing a 90 per cent plus certainty of a cut. With inflation well within the target range, there is no reason to hold.”
He warned “banks will be under intense scrutiny to pass on a cut in full”.
“If your rate’s sitting above 5.5% after this change, you’re probably paying more than you need to,” Mr Cooke said.
Mr Koch said “it’s a competitive loan market so I expect – if the cash rate drops – most banks will pass on the discount in full. There’s growing speculation we could see multiple rate cuts before the end of the year, so I don’t think banks will hesitate to move on this one.”
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