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18 March 2025

Westpac Cuts Variable Home Loan Rates To 5.84 Percent

The banking giant ignites competition among the Big Four as borrowers eye refinancing deals.

Westpac has made waves in Australia's competitive banking sector by lowering its variable home loan interest rates, now offering the lowest advertised rate among the Big Four banks at 5.84 percent. This strategic move aims to attract new customers who are eager to refinance their loans as the market heats up.

Announced on March 18, 2025, Westpac's new Flexi First Option special rate is available exclusively to owner-occupiers paying principal and interest, provided they apply online with more than 30 percent of their mortgage as a deposit. The new rate reflects a reduction of 0.35 percent from Westpac's previous low of 6.19 percent, aligning it with ANZ's lowest rate.

Sally Tindall, director of insights at Canstar, remarked on the rising tension within the mortgage sector, noting, "This move from Westpac is a sign the refinance market is coming back to life." Her analysis suggests the banks are prioritizing offers to attract 'desirable' customers—homeowners with substantial deposits.

The cut follows the Reserve Bank of Australia's (RBA) recent adjustments to the cash rate, which was reduced to 4.10 percent. Following this change, borrowers with a $600,000 mortgage are expected to see their monthly repayments decrease by approximately $128, making it financially advantageous for them to explore refinancing options.

The competitive environment has sparked what industry experts are calling a “refinance war.” ANZ's lowest variable rate, which also sits at 5.84 percent, requires just 20 percent as a deposit and offers additional features like offset accounts, making it particularly appealing for borrowers.

By comparison, the Commonwealth Bank's (CBA) most competitive variable rate stands at 5.90 percent, though it demands a larger 40 percent deposit and likewise includes offset accounts to reduce interest payments. NAB remains at 6.19 percent without the necessity of applying online, yet offers less flexibility for homeowners.

According to Tindall, this uptick in competitive rates is indicative of the banks' focus on wining over customers willing to make the switch digitally, stating, "Three of the big four banks are now engaged in a digital arms race, jostling to steal customers from each other but only those customers willing to apply digitally."

James Hutton, Westpac's managing director of mortgages, added another layer to the discussion, emphasizing the shift in borrowing behavior as the cost of living weighs on many Australians. "With cost of living remaining top of mind for many Australians, savvy refinancers are making the most of the competitive mortgage market and shopping around for a good deal," he said.

Interestingly, smaller lenders are also stepping up to provide competitive rates. Options such as Pacific Mortgage Group, People’s Choice, RACQ Bank, The Capricornian, and Australian Mutual Bank are currently extending rates as low as 5.64 percent, outpacing some of the larger banks. The Bank of China offers another potent alternative at 5.68 percent for refinancing customers, highlighting the diversity and competitive nature of the market.

The Australian Bureau of Statistics reported $206 billion worth of loans were refinanced last year, underscoring the significant appetite for mortgage changes, even with the cash rate remaining static at 4.35 percent at the time. The recent rate cut by the RBA is expected to rejuvenate these tiring refinancing rates, with experts predicting growth as the environment becomes more favorable to borrowers.

The shift is also seen as reflective not just of direct competition among banks, but of broader economic concerns and consumer behavior. With the looming federal elections, which must occur by May 17, 2025, the economic forecasts and local financial stability are expected to play pivotal roles, particularly following the central bank's decisions post-election.

Canstar's evaluations revealed significant potential savings for homeowners. For example, those who successfully negotiate down to rates like 5.74 percent, compared to 6.06 percent, could save over $2,828 in interest over two years. Even those paying rates as high as 6.86 percent could benefit dramatically—logging savings near $12,416 over the same duration by adjusting their strategies now.

The competition among banks has not only intensified but has also returned homeowners to the forefront of strategic planning, urging many to review options as they seek to either settle or reduce their existing mortgage burdens through favorable refinancing deals.

With economists keeping their eyes tuned to the Reserve Bank's upcoming meetings, predictions of maintaining the cash rate at 4.1 percent are already swirling around, leading the financial markets to anticipate the potential for additional rate cuts later on. The atmosphere is charged with consumer dynamism as borrowers embrace technology and convenience provided by online applications, leading this new round of competition.

Each development leads back to the crux of the narrative: the continual appetite for lower rates and refined loan structures spurred by economic factors and personal finance management strategy, transforming Australia's banking sector one interest rate at a time.