Revealed: Four banks failed to pass on May rate cut in full

All 111 lenders lowered customers’ home loan rates after the RBA’s May cut. But four banks only passed on some of the relief.

Buying a house is one thing, but the hard part is making sure your interest rate is good.

ANALYSIS

Well, we did it! Our rate cut shame list ensured lenders went one better than in February and all 111 lenders being monitored ending up passing on a cut.

Even Virgin Money, who stubbornly refused to pass on the first cut this year, were quick to move in May, announcing it would pass on a 25 basis point reduction to its lenders on the same afternoon the RBA cut the official rate from 4.1 per cent down to 3.85 per cent.

Experts had warned, and indeed history has shown, that lenders will often pass the first cut on in full at the beginning of a lowering cycle, but are not as reliable when further cuts are announced.

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Lenders improved their overall response time in May, compared with the February cut.

Finder analysis revealed banks took an average of 14 days to pass on the May rate cut, which was the same as February, but the longest time it took a lender to pass on in May was just 27 days, compared to 42 in February.

However, while all lenders dropped rates in May, not all passed on the full 25 basis points.

Family First Credit Union dropped its best variable rate by just 0.05 per cent, Finder research showed, which is only one fifth the savings being enjoyed by customers of other banks.

Laboratories Credit Union passed on a 0.1 per cent cut, while Bank of China and Dnister both gave customers a 0.2 per cent discount.

The difference sounds small, but let’s look at the savings you could make with a $1 million mortgage, being paid off over 30 years.

If you started with a 6 per cent interest rate on your loan and your lenders passed on a full cut to drop your new rate to 5.75 per cent, you would save $160 a month and about $58,000 over the life of the loan.

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Finder's home loan expert Richard Whitten

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If your cut was 0.2 per cent, you would save $119 a month and $43,000 over the loan term.

A 0.1 per cent cut would mean you’d save $60 a month and $21,000 over 30 years.

A 0.05 per cent cut would save you $30 a month and just over $10,000 over the loan term.

So that’s nearly $50,000 in difference over your loan term, from just one small variation in a single rate cut.

Finder’s home loan expert Richard Whitten says borrowers need to hold their lenders to account, or risk missing out on big savings.

“If your lender hasn’t fully passed on a recent interest rate cut, now is the time to consider refinancing to get a better deal,” Mr Whitten said.

“Compare the interest rate on your loan with what competitors are offering. Many lenders are quick to pass on rate increases but lag with decreases, so don’t assume your current rate is the best you can get.”

And if your lender has passed on the cut in full, it doesn’t necessarily mean your deal is up to scratch, Mr Whitten warned.

“There’s a high chance another lender is offering a better deal to new borrowers,” he said. “If you find a better offer, contact your current lender and negotiate. It never hurts to ask for a lower rate. But be prepared to switch if they don’t budge.

Originally published as Revealed: Four banks failed to pass on May rate cut in full