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Westpac has delivered a shock doubling of its rate cut expectations. Picture: Britta Campion / The Australian
A bombshell forecast by one of Australia’s biggest banks could put thousands more back in struggling homeowners’ pockets than expected amid an unprecedented rate cut war.
In a shock move, Westpac Bank has doubled its rate cut forecast for the current cycle to now expect the Reserve Bank to implement four cuts to the cash rate target – putting in two additional 0.25pp falls in 2026.
That would drive the cash rate target down to pandemic-era 2.85 per cent again, a number it was last at in November 2022.
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Canstar data insights director Sally Tindall. Picture: Tim Hunter.
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The move would save as much as $4,200 a year in interest charges for someone currently on a $600,000 loan, according to Canstar analysis.
Canstar.com.au data insights director Sally Tindall said “if Westpac’s forecast comes to fruition and there are four more RBA cuts through to mid-next year, someone with a $600,000 loan could potentially see their monthly repayments drop by almost $350 a month.”
“This would be a huge relief for households under pressure, however, borrowers should remember this is a forecast, rather than a given.”
In a surprise addition, Westpac also believes those 2026 cuts could come in earlier depending on whether inflation and labour market figures track weaker in late 2025.
NAB is the outlier, expecting the next rate cut in July, compared to August for the other three big banks. Picture: Britta Campion / The Australian
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Of the big four, only National Australia Bank expects RBA to cut rates at its next meeting on July 8, with the other three picking a fall to 3.6pc in August.
“A single 0.25 percentage point cash rate cut, if fully passed on by lenders, could reduce monthly repayments on a $600,000, 25-year mortgage by $90,” Ms Tindall said.
So far the Big Four forecasts show Westpac expecting four cuts now, NAB predicting three, and CBA and ANZ sitting on two.
Such cuts would also drive the bulk of interest charges on mortgages under 5 per cent, with Westpac expecting the timing to be a cut in August and November this year and then two more in February and May next year.
Canstar.com.au data has seven lenders already offering fixed rates from 4.99pc, Ms Tindall said, as banks attempt to get more buyers to lock in.
Current predictions by ANZ are two rate cuts this year. Picture: Britta Campion / The Australian
CBA has the same prediction as ANZ of two rate cuts this year. Picture: Britta Campion / The Australian
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“While the majority of these deals are for owner-occupiers paying principal and interest, two banks – Australian Mutual and Police Bank – are also offering this sub-5pc rate to investors.”
Lenders offering at least one fixed rate starting with a 4 include Australian Mutual Bank (4.99pc), Bank of Queensland (4.99pc), Community First Bank 4.99pc, GMCU 4.99pc, Queensland Country Bank 4.99pc, Pacific Mortgage Group 4.99pc, and Police Bank 4.99pc.
“The RBA won’t hesitate to act in July should global volatility ramp up, but the more likely scenario is that it will sit tight until after the June quarter CPI results, due out at the end of next month,” is Canstar’s prediction.
“Borrowers shouldn’t be banking on multiple rate cuts just yet, but they can start preparing by shopping around for a better deal, particularly if, as an owner-occupier, their variable rate starts with a ‘6’.”
“Fixed rates continue to fall as lenders look to lock in more customers with rates starting with a ‘4’.”
More banks are expected to follow suit as the rate cut wars heat up.
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