Rates gap widens as big four banks refuse to pass on RBA cuts

The excess of the big four’s home-loan rates over their lowest competitor offerings has blown out.

Scott Morrison has accused the big four banks of profiteering for not passing on the full RBA rate cut.

The excess of the big four banks’ standard home-loan interest rates over their lowest competitor offerings has blown out to a full percentage point since the Reserve Bank started cutting rates in 2016, raising questions about why more consumers don’t refinance.

The average of the five lowest variable rate home loans on the market is 2.77 per cent, according to analysis by comparison website Ratecity — a full percentage point below the 3.77 per cent discounted standard variable rate the big four banks offer.

Scott Morrison last week ­accused the big four lenders, which have 80 per cent of the home-loan market, of “profiteering” for passing on only half of the Reserve Bank’s latest 0.25 percentage cut in the cash rate earlier this month.

Sally Tindall, research director at Ratecity, said borrowers could save thousands of dollars from switching even after paying application and discharge fees.

“Borrowers don’t shop around for a variety of reasons, such as allegiance to a brand, fear of the extra paper work; but the savings can be huge,” she said.

 

While the number of home-loan providers has fallen slightly to 102 since 2016, the gap ­between the average of the lowest five home loan rates available and that of the big four banks has risen from 0.84 percentage points to one percentage point.

Since April 2016, the RBA has cut the cash rate five times — from 2 per cent to 0.75 per cent — and the average discounted standard variable home-loan rate of the National Australia Bank, Commonwealth, ANZ and Westpac has fallen 0.97 percentage points.

The Productivity Commission found in its 2018 report that, among bank customers, “little switching occurs”.

“One in two people still bank with their first-ever bank (and) only one in three have considered switching banks in the past two years, with switching least likely among those who have a home loan with a major bank,’’ it reported.

The commission found existing borrowers typically paid about 0.35 percentage points more on their home-loan rate when compared to new borrowers.

Referring to a series of rises in home lending rates by the ­majors late last year, Ms Tindall said a key reason why home-loan rates were not lower was because of “out-of-cycle rate hikes from the banks — the most recent of which was in 2018”.

According to separate figures released on Thursday, the value of home-loan refinancing rose 8.4 per cent between July and ­August to the highest level since 2016. “We expect this trend will continue as refinance appli­cations that are still in the pipeline are settled,’’ Ms Tindall said.