Small lenders beat big banks to punch

Several small lenders reduced variable home loan rates as the federal government applied pressure to the big end of town.

The Reserve Bank of Australia has cut the official cash rate to a new record low of 0.1 per cent.

The major banks were considering cutting fixed rates on mort­gages late on Tuesday, after several small lenders reduced variable home loan rates and the federal government applied pressure to the big end of town.

The major banks all kept quiet on their standard variable mortgage rates on Tuesday after the Reserve Bank cut the official cash rate by 15 basis points to 0.1 per cent. The Australian understands the big banks are taking on board calls from Josh Frydenberg to seek out ways to lower borrowing costs, despite the impact that will have on net interest margins and savers.

Mr Frydenberg fired a warning shot to banks on Tuesday, saying “it’s my expectation that the banks will now look for ways to pass on those rate cuts — pass it on to small businesses, and pass it on to mortgage holders”.

The Treasurer’s comments were stern but seemed to acknowledge the sharp margin pressure rate cuts were causing the banks, which are navigating COVID-19 loan losses and markedly lower profits.

Ahead of the RBA move, bank analysts were questioning whether the big banks would pass on any of the expected official rate cut given the sector wants to protect profit margins, and interest rates on savings accounts and term deposits are already at record lows.

Reserve Bank governor Philip Lowe on Tuesday said “we would expect and hope these rate reductions get through to borrowers”.

He highlighted the “best outcome” was for banks to lower standard variable rates. If that didn’t occur, Dr Lowe said he was “confident” the pass-through of lower rates to borrowers would happen via customers renegotiating better rates through existing lenders, or seeking deals elsewhere.

Bank funding costs are based on a range of factors, including the bank bill swap rate and, during the COVID-19 pandemic, the RBA’s low-cost term funding facility.

Despite the banks keeping mum, several non-bank lenders got on the front foot on Tuesday to pass on the official rate cut. Homeloans.com.au, a division of ASX-listed Resimac, raced out of the blocks to pass on the RBA’s 15-basis-point rate reduction.

The non-bank lender made the announcement about seven minutes after the RBA outlined its move and a bumper $100bn bond-buying program.

RateCity analysis shows that, given the latest rate drop, the average borrower with a $400,000 home loan saves $33 a month on their minimum repayment if their lender passes on the full cut. For a $1m mortgage, that monthly saving rises to $82.

Resimac chief Scott McWilliam said following the RBA rate cut the lender was reducing variable mortgage rates by 0.15 per cent for new and existing variable-rate customers, including customers still completing a loan application.

“This is the second time we’ve reduced our interest rates in less than a month,” he said.

The homeloans.com.au low variable rate mortgage is priced from 2.14 per annum, or a comparison rate of 2.16 per cent.

Non-bank lender Athena also passed on the RBA cut to new and existing customers.

The latest reduction by Athena puts its interest rates for owner-occupiers at 2.19 per cent for those paying principal and interest.

Mortgage House passed on the 15-basis-point rate cut, although the move becomes effective on November 15. Pacific Mortgage Group cut its variable home loan rate by 10 basis points.

In a controversial move, several lenders opted to only cut home loan rates for new customers. Homestar Finance outlined a 15-basis-point rate cut for new customers, while Reduce Home Loans said new borrowers would get a 20-basis-point reduction.

Reduce Home Loans now has the lowest advertised variable mortgage rate in the market at 1.77 per cent.

Additional reporting: Patrick Commins