Banks Offer Lower Fixed-rate Loans

HARD-PRESSED home owners were yesterday offered an extra degree of relief from high mortgage costs as two of the big banks sought to outdo each other in the key area of fixed-price home loans.

In a further sign that last week's dramatic 1 percentage point cut in official interest rates by the Reserve Bank is beginning to ease the funding pressures on the lending sector, National Australia Bank followed the weekend move by Westpac to reduce its locked-in mortgage offerings to as little as 6.99 per cent.

While NAB's new two-year cheaper deal did not go as far as Westpac's three-year guarantee, the announcement will go some way to reversing the sharp rise in borrowing costs experienced by home owners since 2006.

Westpac claimed yesterday that its latest and best rate would save home owners with a $250,000 mortgage as much as $250 a month if they fixed their repayments to October 2011.

In all, Westpac trimmed its various fixed rates by 1.1 percentage points while NAB reduced its offerings by 1.6 percentage points.

That meant that rates on general fixed-price loans for periods ranging from one year to as far out as 10 years were cut by the two major banks to as low as 7.19 per cent - a discount of almost 1.4 percentage points on the newly reduced price of an average standard variable mortgage.

The moves provided additional evidence that the trend in home loan costs is downwards, with the Reserve Bank forecast to cut official rates even further in coming months as it seeks to combat the global credit crisis and ward off the threat of domestic recession.

It also underlined a renewed push by the banking industry to stimulate the fixed-rate sector of the lending market after it peaked in March at the height of the recent rate tightening by the Reserve Bank.

With standard variable home loan costs topping 9.5 per cent, nearly 24 per cent of all home loans were fixed for specific periods. But that had dropped to 4.6 per cent of the market by August - a seven-year low according to figures compiled by the Australian Bureau of Statistics.