All out war between banks

Despite recent hikes by all the major banks the NAB believes that a price war is about to erupt in the fixed-rate home loan market.

Steven Shaw head of NAB's mortgages said that he expected price competition between the banks to intensify in the next few months as lenders vied for investment borrowers.

He further stated that more banks would become competitive in the fixed-rate market in the lead up to the new financial year, he also felt that the gap between variable rates, and long-term fixed rates, were going to narrow but couldn't speculate by how much.

Despite increasing its rates last week the NAB had consolidated its position as a price leader on fixed-rate mortgages. A competitive gap has opened between the four major banks on fixed-rate products of their standard variable mortgages despite them being relatively close to each other on pricing.

Data collated by market research firm Cannex has revealed that NAB and Westpac have the best headline rate offer. The data also showed that NAB has the best advertised offers for loans fixed at one, two, three and five years, while Westpac is leading the market in seven and ten year loans.

NAB's aggressive pricing would be likely to attract more investment borrowers, most of whom prepay interest on fixed loans for tax deductions.

Mr Shaw added that about 25 per cent of the bank's owners-occupier borrowers were on fixed-rate mortgages, with the three-year loan being the most popular product. He felt that the bulk of their lending to owner-occupiers would continue to be skewed heavily to variable rates, but that more people would take up cocktail rates where they fix part of their home loan.

Frank Lopez Cannex's analyst said that more owner-occupied borrowers were now evaluating options to fix all or part of their mortgages, and that the outlook for long-term rates had increased.

Although the RBA may still reduce official interest rates this year, the long-term trend is up based on the view that we are at the bottom of the rate cycle.

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Published on April 4-th, 2009 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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