Virgin Money’s surprise move for homeowners

Another lender has made the surprising decision to ease the pain of price hikes, but only some customers will reap the benefits.

Another lender has made the surprising move to slash interest rates to relieve some of the pain of rising costs, but it comes with a catch.

As of September 1, Virgin Money announced it would be cutting its variable interest rate by as much as 0.2 percentage points – but only for new customers.

For new customers taking out a loan on Thursday, variable owner occupied home loans have been reduced by 0.2 percentage points, while variable investment home loans have fallen by 0.1 percentage points.

Interest rates have been slashed for some people with variable home loans.

The announcement follows similar decisions from Australia’s biggest lenders, including Commonwealth Bank of Australia, Westpac, NAB, and ANZ.

Since the Reserve Bank of Australia began to sensationally hike interest rates in May, RateCity data shows 23 lenders have now decreased their variable rates for new customers.

RateCity research director Sally Tindall said lenders were being forced to slash rates to keep up with the competition.

“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,” she said.

However, the rate expert warned that existing customers weren’t benefiting from the same discounts or perks.

“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,” Ms Tindall said.

Borrowers who have stayed loyal to their bank for several years could be paying hundreds of dollars more every month on their mortgage than if they had shopped around.

RateCity Research Director Sally Tindall urged customers to continue to compare rates for home loans. Picture: Tim Hunter.

The gap between existing owner-occupier variable rates and new customer rates have been steadily on the rise since September across the mortgage industry.

RBA data revealed the gap had widened to a staggering 0.47 percentage points by June. Ms Tindall said the gap was likely to increase as the cash rate continued to rise.

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

“The results could surprise you.”

RateCity suggests checking your variable home loan rate against the rate offered to a new customer by the same lender.

“If this rate is lower than what you’re on, then your bank is taking you for a ride,” Ms Tindall said.

Interest rates have been the subject of much speculation as the RBA chose to sensationally increase rates four times in the past few months.

New customers will be offered a lower variable interest rate than existing customers.

The continuous hikes have caused the price of fixed rate home loans to increase rapidly and many Australians have instead turned to variable home loans that allow for more flexibility.

New figures from the Australian Bureau of Statistics show that the proportion of new home loans being issued with fixed rates has fallen drastically from 46 per cent in July 2021 to just 9 per cent.

The cuts to variable interest rates come as the RBA prepares to meet next Tuesday.

Experts forecast the authority will move to increase interest rates again, with some economists predicting a 0.5 per cent rise while others predict a 0.25 per cent hike.