Battlefield of fixed-rate mortgages

Westpac this morning cut 20 basis points off its one-year fixed home loans.
Westpac this morning cut 20 basis points off its one-year fixed home loans.

Banks are battling it out across fixed-rate mortgages amid growing expectations of a cut to official cash rates as early as next month.

Westpac has become the latest to cut its fixed home loans, this morning cutting 20 basis points off its one-year fixed loans to 5.69 per cent.

It has also slashed 30 basis points from its three-year fixed loans taking the new rate to 5.54 per cent. The changes see Westpac match its big four rivals on one-year fixed rates, while undercutting arch-rival Commonwealth Bank over three years and longer.

The changes in fixed rates do not impact the variable mortgage rates which is the most common form of home loan in Australia.

Even so, the jostling on fixed products has seen pricing on fixed-rate loans at a substantial discount to variable rate loans. Fixed rates are priced on futures markets and as expectations build there will be cuts by the Reserve Bank to official cash rates, the cost of fixed funding falls.

Economists are tipping the RBA will cut official cash rates by as much as 75 basis points over the next year to help offset a slowing global economy and falling commodity prices.

This could see official cash rates fall to a cyclical low of 2.75 per cent. Some have tipped the cutting cycle could start as early as next month.

The share of mortgages at fixed interest rates is currently running at around 10 per cent, down from a peak of 15 per cent in March.

This story Battlefield of fixed-rate mortgages first appeared on The Sydney Morning Herald.