Banks Battle Over the Best Fixed Rate Deal

July 20, 2016


Lenders are all competing for the best fixed rate deal in an effort to boost home loan demand. A drop in overseas demand has created the fixed rate home loan slump, along with a reduction in first-home buyer numbers. Look for a better fixed rate deal by searching and comparing your rate against the lowest interest rate you could qualify for.


Who Has the Best Fixed Rate Deal?

Some 33 lenders have launched more than 100 different fixed-rate home loan products over the last month. This rate is almost four times higher than the number of variable rate introductions, say analysts.

Many lenders are claiming they are overwhelmed by demand, as borrowers flock to take out new home loans. As a result, these financial institutions are taking on more staff so they can cope with demand. They are also said to be wavering fees.


Why Can These Lenders Offer These Deals?

Lenders can provide these lower rate deals on fixed-rate home loans as their borrowing costs are sitting at 1.6 percent over 3 to 5-year terms. This value enables them to lock in larger margins. For instance, bank borrowing costs over 3 to 5 years are around 40 basis points lower than they were a year ago.

There is also fierce market competition, with many lenders trying to out-do each other to gain more customers. According to financial experts, banks are repackaging refinancing and investment home loans.


What Fixed Rate Deal is the Most Popular?

According to the Australian Reserve Bank (ABS), more than 1-in-4 home loans have been refinanced over the last year. Data also suggests that more lenders are cutting rates on 3-year fixed rate home loans.

Over the last 4-weeks, the number of 3-year fixed rate home loan products that were rolled out were almost double that of 5-year fixed rate home loans. The average 3-year interest rate is around 4.20 percent, compared to 4.28 percent for a 1-year fixed rate and 4.56 percent for a 5-year.


Possible Delays in Refinancing

With the 3 year fixed rate home loan being exceptionally attractive, some lenders are warning borrowers that it may take longer than expected to process their home loan application.

Many banks are informing their brokers who are complaining about slow processing times that they are experiencing a service blitz. While the lenders understand the importance of a fast processing time for loans especially when the purchased of many properties are ‘subject to finance approval’ they say they are doing their best to make these delays shorter.

Banks are hiring more processing staff to overcome this problem, as well as empowering more staff to approve loans, and increasing over time. They are also said to be adjusting lending criteria to make faster decisions. For instance, some lenders are ordering valuations in advance to shorten processing times. Valuations usually occur after a home loan application is lodged.

However, some mortgage brokers feel that lenders could be far more efficient than they currently are. Key areas that these lenders need to focus on are application processing which seems to take too long in most instances and on ways to increase their home loan productivity. Making improvements in these areas will keep customers happy as well as brokers, and real estate agents who are waiting to notify their vendor that finance is approved.

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