Major banks cut fixed home loans but leave variable rates unchanged

The big four banks have not passed on the Reserve Bank's record low cash rate to the bulk of their customers but have offered historic low rates to fixed interest mortgages and certain business loans.

The RBA cut the cash rate to 0.1 per cent on Tuesday in an attempt to bring down the unemployment rate and kickstart growth out of the recession.

The Commonwealth Bank of Australia, Westpac, National Australia Bank and ANZ on Wednesday announced cuts to their fixed mortgage and business loan rates but all four have left their standard variable rates unchanged.

The latest figures from largest banks show about 40 per cent of CBA, 30 per cent of Westpac, 21 per cent of NAB and the majority of ANZ customers are on fixed-rate mortgages.

CBA has cut home loan rates to historic lows.Credit: Peter Braig

However, the banks lowered only fixed interest rates by up to 1 per cent, with CBA offering a four-year fixed rate at 1.99 per cent in what the bank described as the lowest ever advertised home loan rate.

RBA governor Phillip Lowe on Tuesday said he wanted commercial banks to help the economy by cutting rates for mortgage holders and business operators.

"The best outcome would be for standard variable rates to be lowered but if that doesn't occur I'm confident there will be pass-through occurring through people renegotiating and switching ... I encourage everybody to go to their bank and ask for a better deal," Dr Lowe said. "If they don't give it to you, switch to a bank that will."

Velocity Trade senior banking analyst Brett Le Mesurier said lower interest rates were bad news for banks and it made sense for them to not pass through the rate cut to all borrowers.

"The banks have over $100 billion in liquid assets on which they're now going to earn 15 basis points less," he said. "So by not passing the reduction on to standard variable rate holders, they're recouping some of the loss margin."

Mr Le Mesurier added the "biggest losers" were retirees relying on interest payments. "Spare a thought for the people who have been prudent savers all their lives and now are getting hardly anything on their deposits, they will now get even less."

KPMG chief economist Brendan Rynne agreed, saying "banks' customers aren't just borrowers".

"There's a fine balance between how a bank deals with its book of borrowers and its book of depositors," he said. "There's a portfolio impact that needs to be taken into account."

Dr Rynne said monetary policy becomes less effective once the cash rate dips below 2 per cent and wider bank rate cuts would not necessarily stimulate the economy.

"Depending on consumer sentiment and consumer confidence, it's not clear whether any interest rate savings may flow through into the December quarter."

CBA and Westpac have also made cuts to their fixed rate business loans, including those using the government's small business loan guarantee scheme, of 0.5 per cent and 0.56 per cent respectively. NAB and ANZ have cut up to 4 per cent off unsecured business loan rates.

CBA's retail banking executive Angus Sullivan said the RBA's cash rate cut should give borrowers confidence. "We have reflected this in our interest rate settings, offering customers our lowest ever fixed rate," he said.

Westpac's consumer chief executive Richard Burton said it was an "extraordinary period" of monetary policy and interest rate changes needed to be carefully managed.

"We recognise it has been a tough time for many Australian households, and these changes mean that customers will be able to access even lower interest rates on our home loan and small business loans," he said.

NAB personal banking executive Rachel Slade said the changes were aimed at providing certainty to customers and supporting credit recovery. "This is the sixth reduction in the cash rate during the past 18 months," she said, adding the banks needed to balance portfolios.

While CBA was the first major bank to make the move, a suite of smaller lenders immediately responded to the cheaper flow of money. Canstar research shows six smaller lenders, including fintech Athena and Pacific Mortgage Group, reduced variable rates between 0.10 per cent and 0.16 per cent.

The RBA's rate cut will remain in place for at least the next three years, giving certainty to banks and other lenders about their funding costs.

It comes after CBA announced on Tuesday a moratorium on forces home sales until September 2021 for borrowers struggling with repayments during the coronavirus pandemic.

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