Commonwealth Bank, the nation’s largest mortgage lender, is cutting lending rates on popular fixed interest products for home buyers and investors by 10 basis points as funding pressures continue to force smaller competitors to raise rates.
The bank is refocusing its marketing on the most popular segment of the lending market with cuts to a range of products that target high quality borrowers. The latest cuts do not include owner-occupier, interest-only borrowers.
It has decreased interest rates on two and three-year fixed rate, owner-occupier principal and interest loans to 3.79per cent and 3.89 per cent respectively.
Three-year fixed rate investment home loans are cut to 4.10 per cent.
Two and three-year fixed rate home loans to investors are cut to 3.99 per cent and 4.09 per cent respectively. The offers are available to new and existing borrowers.
The rates are in the top 20 for each category, which typically have about 140 loans on offer from dozens of competitors, according to Canstar, which monitors loans and costs.
The rates are also generally ahead of its top three main street rivals, which means they are likely to trigger a competitive response.
“We are committed to offering a competitive suite of home loan products,” a bank spokesman said.
The move came as Moody’s Investors Service claimed recent rate increases by 16 smaller banks would “pave the way” for the major banks to eventually increase rates and preserve margins, despite pressure created by the banking royal commission to hold rates steady unless the Reserve Bank of Australia increases cash rates.
“The smaller banks have been prompted to action because of higher wholesale funding costs and slower loan growth, but the big four — which have traditionally led on rate changes — have so far held back,” said Tanya Tang, a Moody’s Analyst.
Their “willingness and ability” to increase rates is credit-positive evidence that they retain pricing power independent of the current challenges confronting the majors, Ms Tang said.
Moody’s expects the current round of modest rate rises can be accommodated without a meaningful impact on bank delinquency rates or credit costs because of strong employment, loan serviceability buffers, and strong collateral.
CBA recently announced a tightening of lending criteria that includes increased scrutiny of borrowers’ capacity to service a loan by closer analysis of total income and expenses.
Steve Mickenbecker, a group director at Canstar, which monitors product prices and rates, said the new rates were “highly competitive”.
Mr Mickenbecker said the rate changes did not affect the existing loan book and had little impact on margins.
“The strategy is to stay competitive, retain existing borrowers while building market share,” he said.
The new rates are the latest competitive offers from major lenders intended to attract new business and stimulate demand in flagging property markets.
CBA cut introductory rates by up to 30 basis points on its two-year variable rate introductory products covering principal and interest for owner-occupiers and investors and interest-only borrowers.
It recently launched a review of its mortgage range that includes withdrawing from high-risk low-documentation products, has transformed the reward system for mortgage brokers and hived-off broker operations into a separate business.