Citibank’s head of mortgages strategy, marketing and product, Belen Lopez Denis, has tipped potential further downward movements in fixed rate as the European debt crisis continues to bite.
Yesterday, the bank reduced its standard 3-year fixed rate by 33 basis points to 6.99%. Lopez Denis told Australian BrokerNews that a softening yield curve over the last two weeks due to increased uncertainty over European sovereign and private sector banking debt was translating directly into reduced bank funding costs for fixed rates, making them more affordable for consumers.
Lopez Denis said the Citibank move was based on a forward looking view of fixed rate pricing. She also predicted that downward moves could be seen more widely among lenders in the market. “It's difficult to comment, but don’t be surprised if fixed rates are coming down fairly soon.”
Following the rate reduction, Lopez Denis added that downward moves in fixed rates were making these loans more attractive when compared with variable rates, labelling the current significant differential between fixed and variable rates as a "really unusual circumstance".
"If you think about it, 6.99% can be lower than some of the variable rates available in the market,” she said.
Citibank's move to reduce fixed rates made it "very, very competitive" when combined with its free 60-day rate lock option, she said. "I have heard one other lender from the second tier with a similar level of fixed rates, but they do not have this rate lock feature for free – even the majors don’t. It gives brokers and consumers certainty that the rate is locked in over a long term.”
Ctibank’s current Mortgage Plus standard variable rate for LVRs between 80% and 90% is 7.05%, while loans over $500,000 with LVRs less than 70% are priced at 6.90%. The pricing is based on Citibank's recently introduced "rate for risk" policy.
Lopez Denis said the rate for risk approach had seen a good response from brokers and consumers.
"At the time the structure was introduced on our Basic Variable product, we saw an immediate 30% increase in volumes on an average daily basis. Brokers like being able to show their customers that they higher equity they have, the more reward they get,” she said.