National Australia Bank reduces its long term fixed home loan rates

The National Australia Bank yesterday slashed interest rates on its suite of long-term fixed mortgage products despite rising funding costs in the wholesale money market.

The bank has cut the rate on its 10-year fixed home loan by 0.5 per cent to 6.95 per cent.

NAB has also cut rates on both its four-year and five-year fixed mortgages by 0.1 per cent to 7.25 per cent.

NAB's aggressive pitch for long term business in the home loan market follows similar moves last month by Westpac which cut its five-year fixed rate by 0.2 per cent to 7.39 per cent.

The major banks are angling to lock in borrowers for the long haul as public concern over official rate rises intensifies.

Heightened competition in the long term mortgage market is occurring despite significant rises in wholesale funding markets.

This means that the banks are prepared to absorb lower profit margins to acquire more borrowers.

The indicator rate on 10-year Commonwealth bonds has risen 0.3 per cent to 5.92 per cent since November 24, while five-year indicator rates have risen by the same amount in the bank swap market.

NAB's pricing moves in the long term mortgage market came as other lenders warned that the Reserve Bank was likely to move on official rates next month.

Wizard Home Loans founder and chairman Mark Bouris says an interest rise is inevitable next month while ANZ chief executive John McFarlane thinks it's a 50-50 proposition.

Mr Bouris is tipping a quarter of a percentage point rise, adding that it will cause hardship for new mortgagees.

"I think the Reserve Bank, if the numbers come in, if the underlying inflation comes in at what the expectations are, the Reserve Bank will make a move," Mr Bouris said.

"It's going to be tough, I'm sure it will be, but that's only a very small proportion of the mortgage environment . . . of the $600 billion (worth of mortgages) that might be about three per cent and not every one of those is going to be affected," he said.

He said a February rise would be the last for the year and would achieve the RBA's aims.
"You know the whole thing's designed to stop people from spending. That's what monetary policy's about. And I think it will do that," he said.

But Mr McFarlane said there was no compelling reason to lift rates.

"Analysts and economists are mixed on this, but my own sense is that it's not particularly compelling, not urgent," Mr McFarlane said.

"Obviously the Reserve Bank will act in the event if inflation is systematically outside its target range - which it has not been."

Source: AAP