Will banks cut home loan interest rates?

THE big question today isn't whether the RBA will lower interest rates, but if banks will follow up with cuts to home loan rates.

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Will banks cut home loan interest rates?

THE big question today isn't whether the Reserve Bank will lower the official interest rate, but whether banks will follow up with cuts to home loan rates.

The RBA is expected to lower official interest rates by 25 basis points today. But not all of the country’s big banks have committed to passing on any rate cuts to borrowers.

Will they or won’t they?

ANZ has promised to match any rate cuts by the RBA and lower its variable home loans by the same amount. NAB said last week it would match a 25 basis point rate cut.

Westpac and Commonwealth Bank of Australia have both refused to commit to cutting their variable rates if official rates fall.

Non-bank lender, Wizard Home Loans, pre-empted the Reserve Bank with an announcement on the weekend it was lowering its variable rate from 9.54 to 9.29 per cent.

Stress-o-meter

If banks do pass on a rate cut it will provide some relief for borrowers, but many will still be officially stressed.

The latest Fujitsu Consulting/Wizard Home Loans Mortgage Stress-O-Meter is forecasting a 15 per cent fall in the number of home-owners who are in mortgage stress by the end of the year.

This finding is based on the assumption that the Reserve Bank will cut rates twice before the end of the year.

The survey estimates that the number of households in some form of mortgage stress will fall to 847,000 by the end of the year from 872,000 currently.

The survey found overall mortgage stress rose 4 per cent between June and July to 872,000 households. Severely stressed households dropped by 10 per cent to 311,332, while those in mild stress rose by 14 per cent to 561,071.

Mildly stressed households are those which are maintaining their mortgage repayments by cutting back, using credit cards more and refinancing.

Severely stressed households are those who have refinance several times, are considering selling up, have defaulted or received notice of foreclosure.

Affordability woes

Housing affordability deteriorated in every state and territory of Australia in the June quarter, according to the latest Deposit Power/Real Estate Institute of Australia Housing Affordability Report.

The report shows that 39.8 per cent of family income is now needed to meet average home loan repayments – the highest level in 22 years. Rent took up 25 per cent of their income to pay the average rent.

New South Wales is the least affordable state in Australia to buy a home, followed by Queensland.
Affordability in NSW fell 7.5 per cent over the quarter as average monthly loan repayments hit $2301, up from $2146 the previous quarters. To meet average home loan repayments NSW borrowers need to hand over 42. 6 per cent of their income.

Home loan affordability fell by 1.2 per cent in Queensland over the quarter, and Queenslanders now need 41.0 per cent of their family income to meet average loan repayments. Home loan affordability fell 3 per cent in Victoria in the June quarter and Victorians now need 38.2 per cent of family income to meet average loan repayments.

Housing affordability fell 4 per cent in South Australia over the quarter, 2.4 per cent in Western Australia, and 9.9 per cent in the Northern Territory.

Housing affordability in the Australian Capital Territory fell 3.8 per cent in the June quarter, but ACT is still the most affordable state or territory in Australia to own a home.