Westpac leads the way with mortgage rate cuts following RBA decision

The first of the big four banks, Westpac, has announced that it will fully pass on the Reserve Bank of Australia's (RBA) recent rate cut. The RBA has lowered the official cash rate from 4.35% to 4.10%, prompting Westpac to decrease home loan variable interest rates by 0.25% per annum for both new and existing customers, effective from 4 March.

Westpac's Chief Executive, Consumer, Jason Yetton, commented, "Today's decision will be welcome news for mortgage customers." He further explained that customers with a $500,000 home loan will save an additional $90 each month, amounting to $1,080 in annual savings.

The move follows a trend among the big four banks to reduce interest rates on various home loan products ahead of the RBA's official announcement. On February 3, National Australia Bank (NAB) became the first major bank to reduce its interest rates across all loan terms by 0.25% for owner-occupiers, while offering even greater reductions for investors.

Notably, NAB's lowest fixed rate stands at 5.84% for owner-occupiers with at least a 20% deposit on a three-year term. Shortly after this, Westpac also adjusted its fixed mortgage rates, cutting them by up to 0.4% for owner-occupiers and 0.35% for investor fixed loans.

Canstar reports that Westpac now holds the title of offering the lowest rates among the big four banks, with variable rates starting from 6.44% for the first two years, before rising to 6.84%. However, the bank has since restructured its offerings, removing the rate increase after two years.

AMP has also responded by cutting its fixed term rates for owner-occupiers and investors, with the one-year rate starting at 5.89% and the three-year fixed rate now at 5.70%.

Although banks are becoming more competitive with their fixed rate loans, many Australians appear to prefer variable rates, anticipating further cuts from the RBA. Canstar's data insights director, Sally Tindall, noted that only 1% of new mortgages taken out by the Commonwealth Bank in the last quarter of 2024 opted for fixed rates.

Tindall advises potential fixed rate borrowers to consider waiting for rates to decrease further before locking in a rate and to shop around for the best deal.

On the other hand, while these cuts benefit mortgage holders, they have negatively impacted savings rates as many banks have reduced interest rates on savings accounts. Canstar has found that 20 banks, including the big four, have lowered at least one term deposit rate.

Tindall warns savers that an easing cash rate is a double-edged sword, leading to potentially lower returns on savings as term deposits mature. She suggests that those considering new term deposits should act quickly.