RBA: Mortgage holders should switch lenders if rate cut not passed on
Not all the big banks are responding to the interest rate cut, as Aussies are urged to shop around to find the best deal to save on their mortgage.
Mortgage holders are being urged to shop around for a better home loan deal as banks start to slash their rates.
This comes after the Reserve Bank cut the official cash rate to an all-time low of 0.10 per cent from an already historic low of 0.25 per cent in this month’s RBA board meeting.
Three of Australia’s major banks have slashed the interest on fixed home loans, with some lending products now attracting a rate of less than 2 per cent.
Commonwealth Bank, Westpac and NAB have taken a knife to lending rates following the Reserve Bank’s decision on Tuesday tocut the cash rate to 10 basis points to better support the Australian economy out of the COVID-19-induced recession.
After the RBA announcement on Tuesday, governor Philip Lowe told homeowners to shop around if their bank doesn’t follow through and cut home loan interest rates.
“The best outcome would be for standard variable rates to be lowered but if that doesn’t occur I’m confident there will be pass-through occurring through people renegotiating and switching,” Mr Lowe said.
“I encourage everybody to go to their bank and ask for a better deal ... If they don’t give it to you, switch to a bank that will.”
Mr Lowe said the interest rate cuts will assist the Australian economy’s recovery by “lowering financing costs for borrowers”.
Commonwealth Bank – the country’s largest retail bank – was the first of the big banks to take a knife to their home loan rates today.
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In a statement on Wednesday morning, CBA said its owner occupier four year fixed rate will be reduced by 100 basis pointsto 1.99 per cent – the lowest fixed rate the bank has ever offered in its 108 year history.
The major bank has also lowered two and three year fixed rates for owner occupier home loans by 15 basis points, both offeringrates at 2.14 per cent. One year fixed rates are being advertised at 2.19 per cent.
CBA has not changed the current interest setting on its variable home loan rates.
Westpac has also moved its four-year fixed owner-occupier rate to 1.99 per cent.
NAB on Wednesday afternoon said its four-year fixed owner-occupier rate would move to 1.98 per cent, the lowest rate the financialinstitution has ever offered.
Meanwhile, some lesser-known smaller lenders have trimmed their variable home loan interest rates, including Athena, homeloans.com.au, Homestar Finance, Pacific Mortgage Group, Reduce Home Loans and Freedom Lend.
Treasurer Josh Frydenberg yesterday said the cut is “good news for borrowers” – whether they’re small businesses or households and families with a mortgage.
The Treasurer said he expects the big banks to follow through with rate cuts, even though only one of the big four has followed through.
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Homeowners could save thousands of dollars with the rate cut.
“For someone with a $400,000 mortgage, the average across the country ... that is worth $1000 a year for someone with a mortgage that size,” Mr Frydenberg said.
“That being said, the banks, no doubt, will look for other ways to pass on this lower cost of borrowing for them, whether it’s for small business loans or whether it’s for fixed mortgage rates as well.”
Graham Cooke, insights manager at Finder, said the rate cut could mean big savings from lenders who pass on the reduction to customers.
An average mortgage holder could save $15,000 if banks pass on the cut.
“For mortgage holders, another rate reduction will be welcome news – even a cut of 15 basis points could save the average home loan customer around $500 a year in interest,” he said.
He added that “now is not the time for homeowners to be complacent”.
“If your lender doesn’t pass on the savings, it’s time to refinance to a more competitive deal,” Mr Cooke said.
If a homeowner with the average mortgage of around $480,000 were to drop from the current average variable rate of 3.99 per cent to 3.84 per cent, they would pocket an extra $495 per year. Over the course of a 30-year loan, this would save them almost $15,000 in interest.
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RateCity research director Sally Tindall said it could take weeks before banks decide to pass on the cut to consumers.
“The RBA governor wants this rate cut to help reduce ‘problem loans’ but this will only work if the banks pass it on,” Ms Tindall said.
“There is immense pressure on the banks to do the right thing and pass this rate cut on in full, particularly as many lenders failed to pass on the last RBA cut to their variable customers.”
Canstar editor-at-large Effie Zahos said the major banks would likely have no choice but to follow through with home loan rate cuts – eventually.
“We should expect these to come through sooner rather than later,” Ms Zahos said.
“The big banks have been working hard to clean up their image and they won’t want to undo the goodwill they’ve established with customers during the pandemic by not pulling through with home loan rate cuts now.”
After the RBA cut rates by 25 basis points on March 3, the big four banks passed it on in full, with the ANZ and National Australia Bank cuts kicking in 10 days later while Westpac followed on March 17 and Commonwealth Bank on March 24.
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