National Australia Bank (NAB) has made a “strategic” move in slashing its three-year fixed rate as the Reserve Bank of Australia (RBA) weighs up whether or not to lift interest rates at its August 6 meeting.
NAB is the first of the big four banks to cut fixed rates in 2024, lowering the three-year fixed rate 0.60 percentage points to 5.99 per cent for owner-occupiers that own at least 30 per cent of their property.
RateCity.com.au Research Director, Sally Tindall, said NAB was the only big four bank to advertise an interest rate starting with a 5.
“This is a strategic move from NAB in a bid to test whether there’s any appetite among borrowers to revert back to fixing,” she said.
“A big bank fixed rate that starts with a ‘5’ is likely to turn at least a few heads, particularly among those worried about the prospect of further cash rate hikes.
“The popularity of fixed rates peaked back in July 2021 when 46 per cent of new and refinanced loans opted for a fixed rate, according to the ABS.
“This now sits at just 1.7 per cent in the most recent data.
“It’s hard to see people flocking back to fixed rates, but this rate under 6 per cent from NAB is designed to test this.”
But Ms Tindall said fixing for three years would be a big financial commitment for homeowners, especially when the future of the cash rate remains highly uncertain.
“Governor Bullock has said the cash rate is in ‘restrictive territory’, which means it’s likely to come down at some point, however, not even the RBA knows exactly when that will be, by how much, and whether we’re likely to see more hikes before then,” she said.
“For those looking for some relief from having to follow the RBA’s every thought, a fixed rate could be the certainty they need, even if they end up having to pay more for that peace of mind.
“For those looking to pay the least amount of interest possible, it could end up being a gamble between a highly competitive variable rate and a short term fixed one.”
Ms Tindall said most lenders’ lowest advertised home loan rates were fixed rates and yet despite this, the proportion of borrowers opting for a fixed rate was at near record lows..
She said that was unsurprising, with borrowers opting to stay on variable rates in anticipation of the cash rate cuts some economists previously predicted would come as early as August.
However, with the RBA now potentially mulling over a cash rate hike due to sluggish inflation figures, a short-term fixed rate is no longer the silliest idea, provided borrowers shop around for a competitive rate and commit to refinancing or renegotiating their loan as soon as their fixed rate expires.
“Short-term fixed rates can also be a lot more work as you’ll need to renegotiate your loan, or potentially refinance at the end of the fixed rate period,” she said.
“The last thing you want to do is roll over onto a highly uncompetitive variable rate after the fixed rate term expires.”
