National Australia Bank (NAB) has made headlines by becoming the first of the Big Four banks to cut its fixed-rate mortgages this year, with significant reductions aimed at both owner-occupiers and investors. This strategic move occurs just weeks before the Australian Reserve Bank (RBA) is set to convene for its monetary policy meeting on February 17-18, wherein experts expect the central bank to lower the official cash rate.
The recent cuts have seen rates for owner-occupiers drop by as much as 0.25 percentage points, whilst investor rates have experienced even steeper declines of up to 0.30 percentage points. Consequently, NAB's lowest fixed rate for owner-occupiers now stands at 5.84 percent for three-year terms, available only for those making principal and interest payments with at least 20 percent equity.
According to Sally Tindall, the data insights director at Canstar, NAB's proactive decision signals likely changes across the industry as other banks are anticipated to follow suit. "The cost of wholesale fixed rate funding has started to ease slightly. This, combined with a prospective cash rate cut, should push other banks to move on fixed rates," Tindall explained.
The upcoming RBA meeting is generating significant speculation about the possible reduction of the cash rate from the current 4.35 percent, with many analysts predicting it may fall to 4.10 percent. This momentum has been bolstered by more favorable inflation data, with recent results showing inflation rates softening more quickly than previously expected. Alan Oster, NAB Group Chief Economist, commented, "This now makes February the most likely starting point for a gradual easing in interest rates. We still expect the cutting phase to be gradual, with the RBA taking the cash rate down to 3.1 percent by February 2026."
Even as NAB leaps forward with its reduced rates, the disparity remains visible among the major banks. Currently, ANZ holds the title for the lowest fixed rate at 5.74 percent for two and three-year terms, slightly undercutting NAB’s offerings. Tindall states, "Many homeowners have been waiting for well over a year for a cash rate cut. It’s hard to see them throwing in the towel and switching to a fixed rate now when the RBA is poised to move."
Alongside this anticipated easing of cash rates, industry experts are monitoring the overall competitiveness of the mortgage market. Smaller lenders are also making waves, with competitive offerings like SWSbank advertising fixed rates as low as 4.99 percent for certain conditions. This scenario emphasizes the shifting dynamics within the lending space, where competitive edge is increasingly important. Tindall points out, "Fixed rates still have a way to fall before they become fashionable again with borrowers."
Monitoring the broader economic indicators, experts continue to evaluate the retail spending data and its influence on inflation expectations. There is some caution amid the optimism, as factors such as the strong labor market could impact the RBA’s decision-making process, keeping many mortgage holders on alert.
The cuts by NAB are not just about rates; they signify the beginning of what many analysts predict could be multiple rate reductions throughout 2025. Various forecasts suggest up to five potential cash cuts, though the forecasts widely differ among major banks, with more conservative estimates proposed by others like ANZ. The quick-footed nature of these changes positions NAB at the forefront of the anticipated market shifts as families and investors alike await more favorable lending conditions.
Overall, NAB's decisive action marks the likely onset of significant shifts within Australia’s mortgage lending environment. With the RBA’s upcoming meeting expected to clarify the direction for interest rates, borrowers are advised to approach their mortgage decisions carefully, considering the variable unpredictability of future cash rate cuts.