‘Borrower power’ forces banks to cut rates

Consumer pressure has forced banks to cut another five basis points from their home loan rates.

Treasurer Josh Frydenberg said the RBA advice showed that borrowing costs for the banks had continued to fall dramatically. Picture: Kym Smith

Consumer pressure has forced banks to cut another five basis points from their home loan rates, bringing their average total ­reduction closer to the Reserve Bank’s three cuts to the cash rate since June.

The RBA has told the Morrison government its data suggests home owners with average ­mortgages could ultimately be better off by an average $2056 a year since June if the expected trend continues.

The shift has come with an ­apparent rise in the number of home owners switching banks, often to smaller lenders, on the promise of lower rates and the big four banks being forced to offer better deals to existing customers to retain the health of their loan books.

The increasing pass-through rate, according to Treasury, comes with banks facing an investigation by the Australian Competition & Consumer Commission into the repeated failure to pass on RBA ­interest rate cuts in full.

The banks have passed on ­advertised interest rate cuts on home loans of only 60 basis points on average, despite the RBA having cut the official cash rate by 75 basis points since June in an ­effort to stimulate the economy.

Since the last rate cut in Oct­ober, the RBA advised that rate cuts from the banks had now risen to an average 65 basis points and were expected to rise further to 70 basis points over coming months.

This has reduced the average repayments by another $300 a year for the average $400,000 mortgage on top of those already passed on by the banks as they continue to face increasing pressure from customers.

A 75-basis-point cut would be worth more than $2100 in lower repayments for average homeowners.

Josh Frydenberg said the RBA advice also showed that borrowing costs for the banks had continued to fall dramatically and there were encouraging sign banks were getting the message.

It comes on the back of a surprise lift in building approvals for September, which showed a 7 per cent increase, reflecting growing confidence in the market.

“The banks’ cost of funds have come down substantially in recent times, hence the Morrison government’s call for the 75-basis-point cut to the RBA cash rate to be passed on to customers in full,” the Treasurer said.

“The government and RBA have been calling on customers to seek from their credit provider the best possible deal and if still not satisfied, to take their business elsewhere.

“With growing competition in the banking sector, consumers should feel empowered with much to gain.”

According to Australian Bureau of Statistics figures released yesterday, building approvals rose 7.6 per cent in September, which had helped ease the decline over the year.

The rise included 2.8 per cent for private house dwellings while apartments had risen 16.6 per cent on the previous month.

This comes despite expectations in the market that approvals would remain subdued.

Housing Minister and Assistant Treasurer Michael Sukkar said: “Any rise in dwelling approvals is welcome news, and a further vote of confidence in the strength of Australia’s economy. The government is focused on getting on with the job of delivering on our plan to build a stronger economy so we can help even more Australians ­realise their dream to own a home sooner.”