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Westpac follows NAB in interest rate cut with Aussie banks to follow: ‘Highly likely’

The Big Four banks think the next move from the RBA will be down and some have been moving to cut rates.

Tamika Seeto
·Finance Reporter
Updated ·4-min read
Westpac and NAB bank signs.
Westpac and NAB have both cut interest rates on their fixed-rate home loans.

Two of Australia’s Big Four banks have cut interest rates on their fixed-rate home loans. Experts say more banks will follow suit as they prepare for the Reserve Bank of Australia (RBA) to cut the official cash rate.

Westpac, the country’s second biggest home loan lender, has slashed its fixed mortgage rates by up to 0.80 per cent. This brings the bank’s lowest two, three, four and five-year fixed rates down to a competitive 5.89 per cent for customers that own at least 30 per cent of their property.

It follows NAB’s decision to cut interest rates on its three-year fixed rate by 0.60 per cent in July, dropping the rate to 5.99 per cent for borrowers who own at least 30 per cent of their property. CBA and ANZ are yet to move.

Mozo personal finance expert Rachel Wastell told Yahoo Finance there were risks to consider before locking in fixed rate.

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"If the RBA cuts the cash rate and variable rates drop in response, the fixed rate that’s lower now could end up higher later on," Wastell warned.

"On the other hand, sticking with a higher variable rate could mean paying more interest than a fixed rate while waiting for that first RBA rate cut."

Canstar data insights director Sally Tindall said the move made Westpac’s 1- to 5-year fixed rates the most competitive of the Big Four banks.

“These cuts from Westpac are designed to entice borrowers who are sick of the rollercoaster ride a variable mortgage rate can take their finances on,” Tindall said.

“Westpac, like NAB, is likely to be responding to an easing in the cost of wholesale funding, but also the security that comes from locking customers in for a fixed term.

“It’s highly likely we’ll see more fixed rate cuts in the months ahead as we inch closer to a potential cash rate cut. Whether borrowers take the bait remains uncertain.”

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The majority of lender’s lowest advertised home loan rates are now fixed, rather than variable, with the cheapest 3-year rate now at 5.59 per cent. Despite this, the number of borrowers opting for a fixed rate is at near record lows.

Just 2.6 per cent of new and refinanced loans in June were fixed, the latest Australian Bureau of Statistics data found, one of the lowest levels on record and a far cry from the 46 per cent recorded in July 2021 when rates were still at record lows.

Many of these borrowers are now heading towards a "mortgage cliff" where they are rolling onto much higher variable rates. A Finder survey found 27 per cent of borrowers were heading this way in the next 12 months, while a further 21 per cent had already rolled off.

CBA is the only major bank still forecasting a November 2024 interest rate cut but said this will depend on inflation moderating faster and unemployment moving up quicker than the RBA has forecast.

Westpac and ANZ think the first cut will come in February 2025, while NAB has pencilled in May 2025 for the first cut.

“NAB and Westpac are not betting on an RBA cut until early 2025, and CBA is the only big four bank still predicting an RBA rate cut in 2024. As such, it's very possible CBA could start cutting fixed rates soon,” Wastell said.

Macquarie Bank also cut its fixed-rate home loans across various terms this week, with cuts of up to 0.76 per cent. Bank of Queensland has also cut its 2- to 5-year terms by between 0.30 and 0.50 per cent.

It comes after CBA, ANZ and NAB cut the rates on their term deposits, further signalling a rate cut could be on the way.

Tindall said term deposit rates tended to move in advance of expected cash rate changes as banks “don’t want to be locked in paying interest on term deposits at a rate that is ultimately unprofitable for them”.

Wastell said there were pros and cons to fixed rates that borrowers should consider as the big bank's rates started to nudge below 6 per cent.

“While opting for a fixed rate loan now has its advantages, offering protection against rate hikes, there’s also the risk you could miss out on savings after a rate cut,” she said.

“If you’re not sure and want to hedge your bets, you might want to consider splitting your loan between fixed and variable rates.

“This allows you to enjoy the stability of fixed rates while still benefiting from potential reductions in variable rates.”

Variable rates won’t fall until the RBA starts cutting its official cash rate, with the RBA board ruling out a “near-term” cut in the next six months. Markets are currently pricing in a 95 per cent chance of December rate cut into cash rate futures.

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