Home Loans: Relief At Last

CANBERRA: Home-loan interest rates tumbled across the board yesterday as the Commonwealth Bank, Westpac and the St George Building Society dropped theirs by 0.5 per cent to 15 per cent.

Building societies in Newcastle and Adelaide also announced cuts in their interest rates.

The falls in bank rates will apply from next week and affect deregulated loans made since April 2 1986. Rates for those on the Government regulated rate of 13.5 per cent will not change.

The reductions will save homeowners an average $19.50 a month on a $50,000 loan over 25 years. They will also mean new borrowers on average earnings can afford to borrow an extra $1,500, narrowing the deposit gap which has thwarted many prospective buyers. But lower interest rates may raise the demand for homes and push up house prices, wiping out some of the benefits of yesterday's move.

The moves follow the decision by the ANZ bank last Monday to cut its interest rate to 15.25 per cent from next week.

Bank spokesmen were cautious about predicting the pace of further falls, saying they were dependent on sustained improvement in market interest rates and economic conditions. They are still looking to a tough September Budget and continued yesterday to push for the abolition of the 13.5 per cent ceiling on regulated loans, which, they say, could mean further substantial falls for new borrowers.

The Commonwealth and Westpac are Australia's biggest lenders for housing, lending at about $50 million a week in recent months. St George Building Society lends about $65 million a month, mainly in NSW.

The mortgage rate reductions will put strong pressure on the remaining home lenders still charging 15.5 per cent to follow suit.

Senior executives of the National Australia Bank will meet tomorrow or late today to decide whether they will follow the lead of their competitors.

A spokesman for the bank, Mr Haydn Park, said the uncertainty over whether the downward movement in professional interest rates would continue, and a tactical decision to increase the amount the bank was lending for homes ahead of any rate reductions, had so far ruled out any fall.

But he conceded that the moves by the other banks would put pressure on NAB to quickly drop its rates to remain competitive.

ANZ, the bank which led the way earlier this week, said it would not immediately drop its rates another notch.

The bank's general manager of retail lending, Mr Alistair Maitland, told the Herald: "No rates are set in concrete, but we have made our decision and believe what we have done is sustainable in the immediate future."

He said that the bank was reviewing rates daily and could soon decide to bring its rate into line if strong deposit growth and the downward trend in professional interest rates continued.

The Commonwealth Bank will cut its interest rate for deregulated home loans from next Tuesday. The Commonwealth's chief manager of retail banking, Mr Murray Westgarth, said it will also cut deposit rates for savings investment accounts, Keycard accounts and other deposits by between 0.25 per cent and and 1 per cent.

He said the decision to reduce the home-loan rate, made by a meeting of senior bank management yesterday morning, was based on the much stronger flow of deposits in recent weeks and the expectation that this would continue despite the downward move in deposit rates.

The Westpac rate reduction, decided at a meeting of the bank's executives called yesterday afternoon after the announcement of the Commonwealth move, will apply from next Thursday.

Westpac's chief manager, savings bank, Mr John Morris, said the reduction was made possible by the decision earlier this week to drop its deposit rates and by declines in market interest rates.

"We are now looking to a pretty strong Budget from Mr Keating to pave the way for further falls," he said.

"We would also like him to look at the 13.5 per cent home mortgage ceiling so that everyone can share in lower rates."

The St George Building Society reduction will apply immediately to new borrowers and for existing borrowers from their loan repayment in September.

Like the banks, St George reduced its deposit rates concurrently with the mortgage rate cut.

LOANS: WHAT YOU SAVE

At 15% over 25 years

Loan Saving*

$60,000 $24.00

$50,000 $19.50

$40,000 $15.50

*On Monthly Repayments