On Tuesday afternoon, the RBA slashed interest rates for the second consecutive month to a new record low.
According to Mortgage Choice, the two cuts in June and July combined will save $220 a month on a $545,000 mortgage, if passed on in full.
Non-bank lender Resimac was among the first to unveil its hand, stating that customers on its Prime and Specialist mortgages will receive the full 25 basis point cut.
Resimac’s interest rate will start from 3.21 per cent for new borrowers, although existing customers will also receive the full cut. The reduction will take effect from 24 July, the lender said.
State Custodians also said that it will pass on the full rate cut from 24 July on “most” of its loans, for both new and existing customers.
Another smaller lender, Athena, was also quick to pass on the full rate cut — with immediate effect — taking its principal and interest home loan rate for owner-occupiers to 3.09 per cent and investor principal and interest rate to 3.49 per cent.
“The big banks delayed passing on the June RBA rate cut by as much as 21 days, costing Aussie borrowers over $100 million. Lenders who failed to pass on the full savings cost customers a further $280 million. Australians are sick of these games,” Nathan Walsh, Athena’s co-founder and CEO, said announcing its decision.
ANZ makes first move of major banks
ANZ subsequently became the first of the big four banks to announce its intentions, revealing that it too would pass on the full cut.
The cut in rates applies to all of its variable owner-occupier and investment loans, it said, and will take effect from next Friday, 12 July.
That will take ANZ’s standard variable rate (principal and interest) for owner-occupiers to 4.93 per cent, and its interest-only option for owner-occupiers to 5.48 per cent.
“We looked at a number of factors before reaching this decision, including business performance, market conditions and the impact on our customers,” the bank’s group executive of Australian retail and commercial banking, Mark Hand, said.
“On balance, we believe this is the right decision for our home loan customers and for our business.”
ANZ had attracted criticism last month, including from federal Treasurer Josh Frydenberg, for withholding part of June’s rate cut, reducing its mortgage rates by only 18 basis points.
On Tuesday night, the remaining three major banks quietly revealed that they would not be passing on the rate cut in full to all customers — defying the Reserve Bank’s comment that bank funding costs had eased.
Commonwealth Bank (CBA) said that interest-only loans for both owner-occupiers and investors would enjoy the full cut. However, both types of customer paying principal and interest will receive a smaller reduction of 19 basis points.
The bank also announced a temporary increase in interest rates on a five-month term deposit, and an additional 10 basis points for eligible pensioners.
NAB revealed that none of its customers would receive the full rate cut, passing on 19 basis points across all loan types.
Westpac again revealed split interest rate changes, as it did last month. It said that owner-occupiers would again only see a 20 basis point reduction in their interest rates, while investors with interest-only loans will see a bigger reduction of 30 basis points.
Other lenders take time in deciding response
Not all lenders had announced what their interest rate changes would be on the same day as the official cut.
On Wednesday, ING revealed that it would join most of the major banks in denying borrowers the full saving.
Instead, new and existing home loan customers would see interest rates fall by 20 basis points, effective from 18 July.
ME subsequently announced that its home loan rates would be reduced by an even smaller 15 basis points, from 23 July.
“In setting interest rates ME considers the needs of all stakeholders while ensuring the pricing of all products remains sustainable,” it said in a brief statement late Wednesday.
Why did the RBA cut rates again?
In a statement accompanying the announcement that Australia’s official interest rate would be cut to a new record low of 1.00 per cent, RBA governor Philip Lowe cited a need to “support employment growth and provide greater confidence that inflation will be consistent with the medium-term target [of 2–3 per cent]”.
“The outlook for the global economy remains reasonable. However, the uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside,” he said.
“In most advanced economies, inflation remains subdued, unemployment rates are low and wages growth has picked up. The slowdown in global trade has contributed to slower growth in Asia. In China, the authorities have taken steps to support the economy, while continuing to address risks in the financial system.”
Mr Lowe also hinted that banks should pass on the cut in full, stating that “bank funding costs in Australia have also declined, with money-market spreads having fully reversed the increases that took place last year”.
“Borrowing rates for both businesses and households are at historically low levels,” he said.
According to the central bank governor, Australia’s economy remains below par, and while employment remains strong, underemployment remains stubbornly high.
“Over the year to the March quarter, the Australian economy grew at a below-trend 1.8 per cent. Consumption growth has been subdued, weighed down by a protracted period of low income growth and declining housing prices,” Mr Lowe said.
“Employment growth has continued to be strong. Labour force participation is at a record level, the vacancy rate remains high and there are reports of skills shortages in some areas. There has, however, been little inroad into the spare capacity in the labour market recently, with the unemployment rate having risen slightly to 5.2 per cent.
“The strong employment growth over the past year or so has led to a pick-up in wages growth in the private sector, although overall wages growth remains low.”
Mr Lowe added that the RBA is still expecting a “welcome” gradual rise in wages growth rates, as is inflation — which he said will spike in the short term on the back of substantial rises in petrol prices.