Big Four bank’s decision to scrap sub-2 per cent interest rates a ‘wise one’

The National Australia Bank (NAB) is the only big four bank offering an interest rate lower than 2 per cent, following Westpac’s decision to discontinue its introductory variable rate of 1.99 per cent. 

Westpac no longer offers any rates below 2 per cent, however the bank now has the lowest ongoing variable rate out of its big four competitions.

Following the changes, the bank’s lowest Flexi First Option rate is now 2.19 per cent ongoing, for owner-occupiers paying principal and interest with a loan to value ratio (LVR) of up to 70 per cent.

Westpac’s lowest variable rate was previously 1.99 per cent for the first two years, and 2.49 per cent thereafter. 

Westpac has not changed its standard variable or package rates, and the new rate is only available to new customers.

Along with NAB, there are 30 other lenders still offering variable rates under 2 per cent. Westpac’s changes mean customers will initially pay a higher rate, however after two years they will be paying 0.30 per cent less than customers on the previous rate.

Today’s changes to the Flexi First Option (basic variable rate)

Loan typeOld rateNew rateChange
LVR under 70%1.99% for 2yrs then 2.49% ongoing2.19%+0.20% first 2yrs,- 0.30% thereafter
LVR 70% or more2.09% for 2yrs, then 2.59% ongoing2.29%+0.20% first 2yrs,- 0.30% thereafter
Note: Above rates are for owner-occupiers paying principal and interest. analysis showed customers who kept this loan for more than three years and four months would pay less interest than if they were on the previous rate structure. 

This is based on an owner-occupier paying principal and interest on a 30-year loan.

Analysis of the database revealed overall variable rates were largely on a downward trend. 

In the past three months, 60 lenders have cut at least one variable rate, including CBA, ANZ and NAB. Just 10 lenders, aside from Westpac, have increased their variable rates during this time. 

The lowest variable rate is 1.77 per cent from Reduce Home Loans. Research Director, Sally Tindall, said Westpac had “shut the door on rates under 2 per cent.”

“Westpac first dropped its lowest variable rate to 1.99 per cent just over three months ago, and while this sub-2 per cent rate was only ever an introductory one, it played a significant role in driving other variable rates down,” Ms Tindall said.

“In the last three months, 60 lenders have cut at least one variable rate as they jostle for business coming from new borrowers and refinancers.

“While the ultra-low introductory rate would have helped attract the attention of new customers, Westpac’s decision to scrap the two-step rate was a wise one. 

“One competitive ongoing rate is easier for customers to understand and compare, not to mention simpler for the bank to execute.

“The average new borrower will initially pay more than customers on the old rate, however, if they’re still on the same loan after three years and four months they will pay less interest in total,” she said.

Lowest big four bank owner-occupier home loan rates

1 yr fixed2.34%2.24%1.99%2.04%
2 yr fixed2.34%2.24%2.34%2.09%
3 yr fixed2.69%2.59%2.79%2.44%
4 yr fixed2.89%2.89%2.89%2.74%
5 yr fixed3.09%3.09%3.09%2.94%
Source: Note LVR requirements apply for some loans. Westpac’s variable loan is for a loan to value ratio of 70% or less.

Lowest variable rates on the database

LenderAdvertised rate
Reduce Home Loans1.77%
Homestar Finance1.79%
Pacific Mortgage Group1.79%
Well Home Loans1.82%
Freedom Lend1.84%
Tic:toc Home Loans1.89%
Source: Note: Rates are for owner-occupiers paying principal and interest. Some LVR and location requirements apply.

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Nicole Madigan

Nicole Madigan is Senior Journalist and Content Producer for Elite Agent.