Why banks are cutting some interest rates on variable home loans

You may be surprised to see some banks have cut interest rates on home loans. While there’s often a catch, here’s why you should pick up the phone.

It’s the words many Australians at the moment would be ecstatic to hear: your bank is cutting interest rates.

You may have seen reports recently about banks cutting variable home loan rates – often not long after they hiked them in the wake of the Reserve Bank of Australia lifting the official cash rate.

Commonwealth Bank cut its lowest variable rate on Thursday by 0.15 per cent, ME Bank also cut some of its variable rates on Tuesday, Macquarie Bank cut variable home loan rates by up to 25 basis points last week and ANZ made a similar move in May.

But RateCity research director Sally Tindall warns there is a catch.

“The big catch with these rate cuts is that they’re typically reserved for new customers,” she told news.com.au.

“What these cuts show is that competition in the variable home loan market is still as hot as ever, despite the RBA cash rate hikes.”

Stream more finance news live & on demand with Flash. 25+ news channels in 1 place. New to Flash? Try 1 month free. Offer ends 31 October, 2022 >

Commonwealth Bank dropped its lowest variable rate by 0.15 per cent on Thursday. Picture: NCA NewsWire / David Crosling

RateCity’s money saving tip is for existing customers to call their bank and question why a lower interest rate is being offered to new customers.

If you’re an existing customer of one of these banks, you might be disappointed to hear about a better rate being offered to new customers. But Ms Tindall has some advice for you.

“If your bank is offering lower rates to new customers, pick up the phone and ask them where their loyalty lies,” she said.

“If they don’t budge, it could be time to pick up your mortgage and take it to a lender willing to give you a competitive rate.

“If you’re on a variable rate that’s on the rise, you can take steps to minimise the damage by refinancing to a more competitive lender.

“Most variable rate customers are now facing significantly higher repayments, with more hikes coming down the line in coming weeks.

“However, customers willing to take their home loan shopping can potentially nab themselves a rate cut to help soften the blow.”

The Reserve Bank of Australia raised the official cash rate 50 basis points in June – following a rise of 25 basis points in May.

A third successive rate hike is expected next Tuesday, after the RBA board holds its July meeting.

Homeowners were given small comfort when RBA Governor Philip Lowe told a UBS panel discussion in Zurich recently that it wouldn’t be as large as many feared, claiming an interest-rate increase of 0.75 percentage points is “not on the table” this time around.

The RBA will continue to lift the cash rate in the months ahead to slow down inflation.

Macquarie’s global head of strategy Viktor Shvets recently said he believed central banks will be back-pedaling within 12 months. Picture: AAP Image/Dan Himbrechts

After the first RBA cash rate rise in May, Macquarie’s global head of strategy Viktor Shvets said he believed central banks would be considering cutting rates again within 12 months.

“My view for some time was that as we go through 2023 and 2024, there is a much higher probability of loosening of both fiscal and monetary policies than tightening,” he told the Macquarie Australia Conference, according to the Financial Review.

“What is going to happen is when Federal Reserve starts tightening – via quantitative tightening and lifting rates – and rates are getting closer and closer to neutral rates, volatility of asset prices will increase substantially.

“When that happens, the financial conditions index will go through the roof and at that point in time, inflation and growth rates will start disappearing and Federal Reserve will have no choice but to back-pedal.”