Westpac puts mortgage market share before margin

Westpac's decision to cut its standard variable home loan rate by more than the reduction in the cash rate is not the first time the bank has made such a move.

When the Reserve Bank cut the cash rate by 25 basis points in August 2013, Westpac responded with a larger variable rate reduction.

Yesterday, the bank said it would reduce its standard variable rate by 28 bps to 5.7 per cent, with effect from February 20. Its discounted package rate moves to five per cent.

For several years Westpac pursued a policy of preserving its "back-book" margin by keeping its variable rate high, compared with its competitors, and offering heavily discounted package rates to attract new business.

This approach resulted in Westpac having the highest variable rate among the big banks and losing market share steadily from 2010. The strategy changed in mid-2013 when the bank decided to return to system growth in the mortgage market. The aggressive rate cutting of August 2013 and yesterday is the result of that change.

All other lenders that announced rate changes yesterday cut their standard variable rates by 25 bps.

Commonwealth Bank also announced home loan interest rate changes yesterday, cutting its standard variable rate by 25 bps to 5.65 per cent. It also cut its three-year fixed mortgage rate by 25 bps to 4.69 per cent and its five-year fixed rate by 30 bps to 4.69 per cent.

IMB's new variable rate is 5.41 per cent. Greater Building Society cut its standard variable rate to 5.25 per cent, its basic rate to 4.89 per cent and its package rate to 4.69 per cent.

Loans.com.au cut its variable rate to 4.23 per cent. Maitland Mutual Building Society also cut by 25 bps.

They join ING Direct, Bank of Queensland and ME Bank, which all announced rate cuts on Tuesday.