Another lender cuts mortgage rates - InterestRate.co.uk
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Another lender cuts mortgage rates

As Australians continue to struggle with soaring living costs and higher interest rates, another lender has decided to ease the burden by cutting its mortgage rates. Many were surprised to learn that Virgin Money cut its variable interest rate by up to 0.2 percentage points as of September 1st. However, not everyone will benefit from this rate cut.

According to reports, the reduced interest rates will only apply to new customers. Those who take out a new loan can benefit from a 0.2 percentage point cut on variable owner-occupier home loans, while those taking out a new investment home loan can benefit from a reduction of 0.1 percentage points.

Keeping up with the competition

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While the news of the rate cut from Virgin Money has come as a surprise, officials have pointed out that lenders are now feeling the pressure to take steps to compete with rival lenders.

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Several lenders in Australia have already taken similar action by cutting rates. This includes Westpac, which recently announced it was cutting rates on its Flexi First variable home loans. Others include CBA, ANZ, and NAB. In fact, nearly two dozen lenders have reduced their variable rates for new customers since significant base rate hikes began to come into force in May.

RateCity research director Sally Tindall said: “With refinancing at record highs and billions of dollars’ worth of fixed loans coming to an end, lenders are cutting variable rates to attract new borrowers.”

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However, she pointed out that existing borrowers are not getting the same discounts and perks as new ones, as lenders appear to be targeting new borrowers to bring them on board.

She added: “Since the RBA began hiking in May, existing variable customers have seen their rates rise by 1.75 percentage points, yet the big four banks have been handing out discounts to new customers on the side.”

This means that customers who are already loyal customers of banks may pay far more each month than new customers. As a result, they may find that they are much better off shopping around and becoming a new customer with another lender rather than remaining loyal with their existing one.

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Tindall said: “If you think as a loyal, long-serving customer your bank is doing right by you, double check that’s actually the case. The results could surprise you.”

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Data has also shown that there has been an ever-widening gap between existing and new borrower rates for some time. By June, this had increased to 0.47 percentage points, according to RBA figures.

Given the situation, existing borrowers are advised to compare their interest rate with the rate charged to a new borrower with the same lender.

In the meantime, industry experts are speculating over the next base rate hike when the RBA meets again next week. While some believe the next rate hike will be 0.25%, some expect rates to increase by 0.5%.