Banks cut interest-only rates

Banks large and small, including CBA and St George, have joined the bandwagon

By Michael Mata

07 Mar 2018

On Tuesday, the Reserve Bank of Australia (RBA) announced it was keeping the cash rate on hold at a record low of 1.5%. In contrast, banks have been making significant cuts to interest-only rates across the board.

Last Friday, Commonwealth Bank of Australia (CBA), cut its two-year fixed interest-only investor rate, from 4.84% to 4.34%, a massive drop of 50 basis points.

Rival Westpac slashed the same loan type by 14 basis points, from 4.79% to 4.65%.

Meanwhile, Westpac-owned St George cut its two-year fixed-rate investment property loan marginally by -0.04% to 4.60%, and Aussie Home Loans cut its one-year fixed IQ Basic Investment Loan by -0.25% to 4.24%.

Other smaller lenders, such as ING, Mortgage House, and Virgin Money have also dropped some interest-only rates over the previous month.

Sally Tindall, money editor at RateCity, said the tide was turning for interest-only lending.

“It’s been a tough year for home owners looking for interest-only lending who have had to endure at least one, if not multiple, out-of-cycle rate hikes,” she said. “This is the first sign of a reprieve.”

Tindall said these rate cuts suggest that banks are looking to accept more interest-only loans on their books after overshooting on the Australian Prudential Regulation Authority’s (APRA) 30% cap on new interest-only lending.

“The latest APRA data shows the number of new interest-only loans from authorised deposit-taking institutions dropped from 36.26 per cent in March 2017 to 16.91 per cent in September 2017,” she said. “Interestingly, CBA has reversed their 2017 rate hikes on their two-year fixed interest-only loan, so it’s now the same rate as it was in February of last year. Those lenders who have room to move in their interest-only lending limits are likely to join in on these interest-only rate cuts.”