Major banks have begun to cut their fixed-rate mortgage offers in a sign they’re preparing for the Reserve Bank to cut interest rates.

Commonwealth Bank and Westpac became the latest to move last week, following similar moves by National Australia Bank in July.

CBA has cut its one-, two-, three- and four-year fixed terms up to 0.70 percentage points, while also slashing its variable rate for some new customers by 0.35 percentage points.

Westpac, meanwhile, slashed its fixed-rate mortgage rates by up to 0.80 percentage points, taking its lowest fixed rates to 5.89 per cent for  owners with at least 30 per cent equity.

Canstar data insights director Sally Tindall said the rate changes reflect broader changes on global markets and local competition.

That includes the easing cost of wholesale funds for banks internationally and a fight between banks in Australia for loans.

“[There’s] a desire from the banks to lock in more people into a fixed rate because it gives the borrower security of knowing what their rate will be,” Tindall explained.

“But it also gives the bank security that this customer is probably going to stay with them, at least for the fixed-rate term.”

More broadly, the rate cuts show the mortgage market has begun moving again after more than six months of the RBA pausing the cash rate target.

Lenders have been waiting for clues about the trajectory for rates, with central bankers suggesting that there’s unlikely to be cuts in 2024 even as inflation eases off.

Economists are, however, anticipating that the RBA will proceed with cutting the target next year if current inflation trends persist – predictions that underpin the decision to slash fixed rates.

Fixed and variable rates

It all means fixed rates are becoming relatively more attractive to borrowers, but the question is whether the initial moves are enough to shift the market somewhat away from variable rates.

With rates on ice, more than 95 per cent of home lenders are opting for variable deals.

Financial adviser and author of Virgin Millionaire Ben Nash says that borrowers should proceed with caution before diving into a fixed rate, particularly as they are likely to fall further.

That’s because when the RBA does begin cutting rates, the forecast profile for the various fixed terms will follow, delivering a more attractive offer to home owners looking to lock in a rate.

“Fixed rates provide certainty, and that in itself can be valuable, but ultimately the banks are trying to price them in a way where they get what the average market rate is over the period,” he said.

“I think absolutely we’re going to see fixed rates coming down, and variable rates will come down as well.”

Nash said that fixed rates can offer certainty to home buyers who would prefer to insure against the possibility of another hike, which RBA governor Michele Bullock says is still on the table.

“For some people fixed rates can still be beneficial, particularly for people where certainty is highly valuable,” he said.

“If your debt level is high and your cash flow position isn’t super strong and you want to take some risks off the table, then there can be a lot of merit in considering fixed rates as part of your strategy.”

Those who are trying to use fixed rates to try and beat the banks, meanwhile, risk getting caught out, with most forecasters expecting the RBA to begin cutting the cash rate some time in 2025.

“Getting it wrong on a fixed rate often has more consequences,” Tindall explained.