Commonwealth Bank Cuts Mortgage Rate After RBA’s SurpriseNarayanan Somasundaram
Commonwealth Bank of Australia and Westpac Banking Corp., the nation’s two largest lenders, cut their home-loan rates to the lowest in nearly six years after the central bank lowered its key benchmark.
Commonwealth Bank reduced its standard variable mortgage rate by 25 basis points to 5.65 percent, while Westpac cut 28 basis points to 5.7 percent. The new rates are the lowest since April 2009 and effective Feb. 20, the Sydney-based lenders said. The Reserve Bank of Australia pared its cash rate Tuesday by a quarter of a percentage point to a record low 2.25 percent to boost the economy amid collapsing commodity prices.
While Australian Treasurer Joe Hockey said the RBA’s cut was “good news for families and small business,” lower borrowing costs may lure more speculators to a housing market where prices are already at records. The RBA said in September home purchases for investment, particularly in Sydney and Melbourne, had led to an unbalanced market.
“If lower rates lead to stronger demand from residential property investors, regulators will be forced to take measures to cool it,” David Ellis, a Sydney-based analyst at Morningstar Inc., said by phone. The central bank and Australian regulators “would hope high home values and affordability will keep demand under check,” he said.
RBA said in a statement Tuesday that it’s working with other regulators to assess and contain economic risks that may arise from the housing market. The Australian Prudential Regulation Authority in December called on lenders to limit growth in mortgages to landlords to 10 percent a year.
Home prices across major cities rose 1.3 percent in January and were 8 percent higher from a year earlier, data from CoreLogic Inc. show.
The central bank’s rate reduction will boost confidence among Australians, Treasurer Hockey said in a statement Tuesday, as he called on banks to pass on the cut to customers.
A 25-basis-point reduction in mortgage rates saves customers about A$48 a month on the average A$300,000 home loan, Commonwealth Bank said. Westpac said its cut will save homeowners A$52 a month. Commonwealth Bank is the nation’s largest mortgage lender and Westpac is the second-biggest.
Mark Alexander, a Melbourne-based spokesman for National Australia Bank Ltd., said today the lender was reviewing its rates. Australia & New Zealand Banking Group Ltd. will make a decision by Friday, Paul Edwards, a Melbourne-based spokesman for the bank, said by phone Tuesday.
Commonwealth Bank dropped its three-year fixed mortgage rate by 25 basis points and five-year fixed rate by 30 basis points, according to the statement. Its standard variable rate is just one basis point above the record low of 5.64 percent, the lender said.
Housing loan approvals for investors are almost 90 percent higher in New South Wales state, which has Sydney as its capital, than they were two years earlier, the central bank said in its semi-annual Financial Stability Review in September. Such approvals are 50 percent higher over the same period in the state of Victoria, the RBA said then.
Australia has the world’s most overvalued housing market on a price-to-income basis after Belgium, according to the International Monetary Fund.