Westpac's 4.99% Three-Year Home Loan Rate Sparks Concern

An economist believes that Westpac's three-year fixed mortgage rate of 4.99% is unlikely to be sustainable.

The bank said it would give the rate on Wednesday.

It is the first big bank to offer a rate of less than 5% this cycle.

According to Gareth Kiernan, chief forecaster at Infometrics, assuming the other banks match the rate, the difference between the three-year and three-year swap rates will be the smallest since October 2023.

"Although that isn't a particularly long time, it's probably more important to note that the margin across any swap-mortgage rate pairing has only been below the 1.6 percentage points implied by Westpac's rate between August 2021 and October 2023, which was not a time when the market was operating normally due to other monetary policy measures that the Reserve Bank had implemented."

That was when the large-scale asset purchase program and lending funds were in effect, bringing more money into the market.

According to Kieran, it was not a sustainable rate, and it aimed to gain some market share for a term in which banks did not typically compete or do a lot of business.

"Although other banks may lower their three-year rates, I don't expect them to go as low as Westpac's advertised or carded rate. However, if you wanted to mend or refix with them, they might provide the same 4.99% rate if asked."

The other major banks offer special rates of 5.59% for three years.

Squirrel CEO David Cunningham stated that the rate was expected to gain Westpac a lot of business. Therefore, it would not be shocking if banks began matching it "below the line" to keep consumers.

"The conclusion is that term deposit rates will fall significantly. They will drop below 4% in the coming months. In retrospect, other banks were taken aback by Westpac's move.

"Squirrel has been predicting sub-5% two or three-year rates for a couple of months now, so it's good to see it happen sooner rather than later."

It was excellent news for borrowers, he said.

"This year, 80% of floating or fixed mortgages will be repriced, resulting in a $4 billion reduction in annual mortgage interest costs. The average mortgage rate currently is at 6.25% on $370 billion in house loans, so 1.25% lower equals a 20% reduction in the interest component of mortgage payments.

Jeremy Andrews, a mortgage adviser at Key Mortgages, said he had not yet been able to convince other institutions to match the rate.