NAB has become the first of the Big Four banks to cut its fixed-rate mortgages this year in a sign of generous rate cuts to come in 2025.
Every major bank is now expecting the Reserve Bank of to cut rates on February 18 with inflation moderating to surprisingly low levels.
But in a sign of more rate cuts, NAB on Monday became the first of the banking giants to cut its fixed mortgage rates.
Its three-year fixed rate has fallen to 5.84 per cent, following a five basis point cut on Monday for owner-occupier borrowers with a 20 per cent mortgage deposit, paying off principal and interest.
NAB’s one-year fixed rate had the most generous cut of 20 basis points, to 6.09 per cent, as two-year fixed rates fell by 15 basis points to 5.89 per cent.
Canstar’s data insights director Sally Tindall said the other major banks were likely to follow NAB’s lead, amid expectations of more RBA rate cuts.
‘The cost of wholesale fixed rate funding has started to ease slightly,’ she said.
‘This, combined with a prospective cash rate cut, should push other banks into moving on fixed rates.
‘While a few banks are now starting to sharpen their offerings, fixed rates still have a way to fall before they become fashionable again with borrowers.’
ANZ is already more generous than NAB, offering 5.74 per cent for two and three-year fixed rates, which is more competitive than the 5.89 per cent rate for three years offered by the Commonwealth Bank and Westpac.
The smaller players, however, offer the best deals with SWS Bank offering 4.99 per cent.
When it comes to four and five-year fixed rates, Newcastle Permanent offers the lowest rates of 5.59 per cent.
Fixed mortgages commanded just 2.6 per cent of the value of new loans in September last year, a far cry from the 43 per cent market share in November 2021 when the RBA cash rate was at a record-low of 0.1 per cent and banks were offering fixed mortgage rates starting with a ‘two’.
But the big banks are expecting generous relief from the Reserve Bank in the coming year, with NAB forecasting five cuts by February 2026 that would take the RBA cash rate back to 3.1 per cent for the first time since February 2023.
The Commonwealth Bank and Westpac are both forecasting four cuts in 2025 that would take the RBA cash rate down to 3.35 per cent for the first time since March 2023.
An easing to the Reserve Bank’s existing cash rate of 4.35 per cent would mark the first monetary policy easing since November 2020.
But the cuts forecast by the big banks would only partially undo the 13 rate rises in 2022 and 2023, that were the most aggressive since the late 1980s.
Economists have changed their rate cut expectations after headline inflation in the December quarter fell to a near four-year low of 2.4 per cent, or on the lower side of the Reserve Bank’s 2 to 3 per cent target.
Underlying inflation, based on the trimmed mean measure stripping out volatile price items to get an average of price increases, was also relatively low at 3.2 per cent.
Borrowers locking into a fixed-rate mortgage now face hefty break fees in coming years if they want to get out of a contract to take advantage of lower variable mortgage rates, should the RBA keep easing monetary policy.
ONE YEAR: 5.69 per cent from Macquarie Bank; 6.09 per cent from NAB and Westpac; 6.14 per cent from ANZ; 6.39 per cent from Commonwealth Bank
TWO-YEAR: 5.49 per cent from Bank Vic, Community First and Easy Street; 5.74 per cent from ANZ; 5.89 per cent from NAB and Westpac; 6.29 per cent from Commonwealth Bank
THREE-YEAR: 4.99 per cent from SWS Bank; 5.74 per cent from ANZ; 5.84 per cent from NAB; 5.89 per cent from Commonwealth Bank and Westpac
FOUR-YEAR: 5.59 per cent from Newcastle Permanent; 5.89 per cent from Westpac and ANZ; 6.19 per cent from NAB; 6.29 per cent from Commonwealth Bank
FIVE-YEAR: 5.59 per cent from Newcastle Permanent and RACQ; 5.89 per cent from Westpac; 5.99 per cent from ANZ; 6.69 per cent from Commonwealth Bank
Source: Canstar