Lenders begin to pass on RBA cut

The cash rate has now been slashed by a cumulative 75 bps over the past five months, with the RBA also lowering rates in June and July.

Lenders have already begun to pass on the RBA’s latest cut through lower mortgage rates.

CBA fails to pass on full cut

The Commonwealth Bank of Australia (CBA) has announced that it will reduce its variable home loan rates by 13 bps, well short of the full 25 bps.

CBA’s 13 bps reduction will apply across its owner-occupied and investor products, with the exception of investor IO customers who will receive the full 25 bps cut.

As of 22 October, CBA’s owner-occupied standard variable rate (SVR) will start from 4.8 per cent, with its investor SVR to start from 5.38 per cent.

Following the announcement, Angus Sullivan, CBA’s group executive of retail banking services, said: “As the Reserve Bank cash rate has reached record lows, we face a difficult balancing act between the multiple, valid interests of our stakeholders. Particularly given it is currently not feasible to pass on the full rate reduction to more than $160 billion of our deposits which are at, or near, zero rates.

“In balancing these interests, we have carefully considered how to best meet the needs of over 6 million savings customers – who may find it challenging to make ends meet with record-low savings interest rates – with the needs of our 1.6 million home loan customers, who want to pay less on their mortgages; and the needs of our shareholders, many of whom are retirees who rely on our dividend.”

CBA also announced that it will limit the base rate reduction for savings customers with its NetBank Saver product to 0.05 per cent, effective 4 October.

NAB passes 15 bps

NAB has announced rate reductions of between 15 bps and 30 bps to its variable home loan products, effective from 11 October.

NAB will apply a 15 bps reduction to all of its owner-occupied and investor home loans, with the exception of investor IO products, which will be cut by 30 bps.

The major bank’s SVR for owner-occupiers will start from 4.77 per cent, while its SVR for investors will start from 5.37 per cent.

NAB’s chief customer officer of consumer banking, Mike Baird, commented: “While these changes further support our 930,000 home loan customers, we are aware of the growing impact reductions in interest rates have on our 3 million savings and investment customers and will continue to offer competitive interest rates on savings and term deposits.”

He added: “With the RBA cash rate at historic lows, the cost of deposits comes under pressure.

“This dynamic is unlikely to change for the foreseeable future, but we’re determined to support all our customers and play our part by continuing to lend to boost growth and confidence in the economy.”

Online lenders first to move

Non-bank lenders Athena Home Loans, Homestar Finance and Reduce Home Loans were the first off the blocks.

Athena Home Loans has reduced its variable rates by the full 25 bps, with its owner-occupied rates now starting from 2.84 per cent and its investor rates starting from 3.24 per cent.

Homestar Finance has also reduced its variable home loan rates by the full 25 bps, with its owner-occupied rates now starting from 2.74 per cent.

Meanwhile, Reduce Home Loan’s owner-occupied rates have now fallen to as low as 2.69 per cent.

According to Kirsty Lamont, director of comparison site Mozo.com.au, mortgage rate cuts from non-bank lenders would place pressure on banks, particularly the big four, to pass on the RBA’s cuts in full.

“Online lenders are reacting to the RBA cut with lightning speed,” she said.

“They’re turning the screws on the big banks knowing the banks are in an unwinnable position, with the unenviable choice of having to either pass through [the RBA’s] cut in full to mortgage customers and take a hit to their net profit margins, or hold back part of the cut and risk losing even more borrowers to their cheaper rivals.”

The Mozo director added that the latest cuts form the RBA would drive fierce competition in the mortgage market.

“We saw huge spikes in home loan comparison activity following the June and July rate cuts, and we’re likely to see a similar frenzy this time around as bargain hunting borrowers respond to a new crop of ultra-low rate home loans hitting the market,” Ms Lamont added.