Westpac cuts fixed rates for new borrowers

Westpac has launched an aggressive push into principal and interest lending. PHOTO: JESSICA HROMAS

Westpac, the nation’s second largest mortgage lender, is slashing popular fixed term mortgage rates for new home buyers by up to 40 basis points, fuelling increased competition for lowerrisk home buyers.

The cuts push headline lending rates on some two- and three-year terms to below 4 per cent, pushing into a lower rate lending space that has been occupied by many of the non-banks and smaller players that have been leading the market lower.

‘‘This is an attempt to drive out smaller players who have been reducing rates. The big boys are responding,’’ said Martin North, principal of Digital Finance Analytics, an independent financial analyst.

The group’s recent repricing of its loan book following regulatory pressure to pull back from riskier interest-only investor loans has enabled it to build a war chest for an aggressive push into the principal and interest sector, according to analysts.

The bank has told mortgage brokers, who act as intermediaries between the bank and lenders, about the cuts but has yet to make a public announcement. Bank of Melbourne, BankSA and St George Bank is cutting owner-occupier fixed rate principal and interest loans by 6 basis points for twoyear and 5 basis points for threeyear loans.

The new rates are 3.79 per cent and 3.89 per cent respectively.

Interest only, owner-occupied fixed rates are being reduced by 15 basis points for two and three years. The new rates are 4.09 per cent and 4.19 per cent, respectively. Residential investment fixed rate principal and interest loans for two- and three-year terms are being cut by up to 20 basis points.

Residential investment fixed rate interest loans are being cut by up to 40 basis points for a two-year loan and 30 basis points over three years.

It follows the bank recently introducing stringent test on residential property borrowers’ existing and future capacity to meet their repayments, which includes quizzing on dozens of potential scenarios on how they intend to repay.

The bank has also been aggressively pulling back from investor interest-only loans following the Australian Prudential Regulation Authority-imposed speed limits and caps on growth.

Westpac has spent several months cutting back on interestonly loans to below the mandatory threshold of 30 per cent of new loans.