Big four banks no guarantee to pass on RBA rate cuts

A February rate cut by the RBA may not bring Australians as much relief, if this has anything to go by.

Canstar data director Sally Tindall. Picture: Tim Hunter.

If you’ve been holding out for a rate cut, you’ll be encouraged by predictions the RBA will finally pull the trigger in February.

But remember, an RBA cash rate cut is just half the story. It’s then up to your bank to pass that on to customers.

And while some relief will be almost certain, banks don’t tend to be quite as good at passing on rate cuts in full, as they are rate hikes.

Over the past 10 years, there have been 10 RBA rate cuts.

A Canstar analysis revealed that of the 10 cuts, only four were passed on in full by CBA, NAB and ANZ. Westpac could only manage two. Not great numbers from a customer’s perspective (though Westpac did go above and beyond in 2015, slashing by 0.28 per cent despite the RBA only prescribing a 0.25 per cent cut).

Meanwhile, since 2022, there have been 13 RBA rate hikes and- gee, you wouldn’t read about it- all four banks passed on every single hike in full. And let’s not forget back in 2018, when they hiked rates even though the RBA didn’t.

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Even if Michele Bullock announces a rate cut on 18 February, it’s no guarantee banks will pass it on in full to customers. Picture: NewsWire/ Monique Harmer

Different this time?

Experts don’t expect banks to get stingy with the first rate cut after 13 hikes.

“I can’t see a world where they don’t pass on the first cut in full,” Canstar data director Sally Tindall said. “There would be serious backlash.”

Mortgage Choice brokerage owner David Thurmond agrees.

“It would be financial suicide,” he said. “The optics would be terrible.”

Both warn it’s the following rate cuts that customers will need to scrutinise.

“If there are a series of cuts, banks may begin to hold back,” Ms Tindall said, adding that customers need to be vigilant.

“You have to be on top of it or your bank can take advantage of you in the form of not just higher rates, but higher fees or perhaps an ill-fitting home loan.”

RELATED:Big bank pulls surprise double rate cut

David Thurmond of Mortgage Choice believes banks will pass on the first cut in full.

Newbies get the best deal

A cut will encourage borrowers to engage with their finances, Ms Tindall believes.

“We will see people becoming more engaged with their situation,” she said. “And there is a good chance there will be competitive rates on the table, which may see new customers offered rate discounts of more than the actual cuts.

“Prices will be pushed down by competition in the marketplace and people switching lenders.”

Mr Thurmond said mortgage holders should not wait to be given better rates, but rather take action themselves.

“If you’re with a big bank there will always be a better deal out there. You just need to constantly review,” he said.

“The cost of switching banks is about $700, so that’s what we assess, when looking at whether it’s worth it for customers to move.”

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Let’s ask the banks

I thought I may as well ask the major banks if they would pass on a February rate cut in full.

All four were unsurprisingly unable to disclose that information (one pointed out that price signalling is illegal, so fair enough), but they said they would disclose the information to their customers in a timely manner after any RBA announcement.

And a rate cut may not automatically mean smaller repayments for borrowers. Most banks will first talk to their customers to find out whether they want to change their repayment amounts.

Sally Tindall says it’s worth continuing to pay the higher amount if you are able. Picture: Tim Hunter.

“In a lot of cases, customers will have to contact the bank in order for changes to payments to occur,” Ms Tindall said. “It’s in the customer’s interest to keep the minimum payments higher if they can afford it, because it can save them a lot of money over time in interest.”

Originally published as Big four banks no guarantee to pass on RBA rate cuts