The RBA has cut the official interest rate again in October, and business groups are begging for lenders to pass it on in full. But with rates at historic lows, are lenders willing to do so?
Minutes after the RBA announced that it had cut the cash rate to a new record low, Athena announced that it would pass on the full cut across its range of loans.
That takes its variable principal and interest home loan rate to 2.84 per cent, and to 3.24 per cent for investors.
Similarly, online lender Homestar Finance announced that it would also pass on the full reduction. That takes its variable home loan rate down to 2.74 per cent.
Meanwhile Reduce Home Loans slashed the variable rate on its Low Rider Home Loan, taking the rate to 2.69 per cent, with some of its other owner-occupier and investor loans seeing rates also fall below 3 per cent.
“Online lenders are reacting to today’s RBA cut with lightning speed,” said Kirsty Lamont, director of comparison site Mozo.
“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 today’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.”
She suggested the major banks were unlikely to pass on October’s rate cut in full.
“The big four banks will likely pass through just 15 or 16 basis points of today’s cut, leaving the door wide open for fed-up borrowers to stampede out the door in search of a better deal elsewhere,” Ms Lamont said.
As at 5.30pm on Tuesday — three hours after the RBA announcement — none of the major banks had revealed their plans, nor had many of any other lenders.
NAB tweeted in response to a query: “Hey there, we acknowledge the RBA has today made the decision to lower the official cash rate by 25 basis points and are currently reviewing this decision.”
Similarly, ANZ tweeted in a response that “we haven’t had an announcement of any updates with ANZ’s interest rates. Please be assured, the update will reflect immediately on your internet banking when/if there is a change.”
It marks a very different approach to earlier this year, when most banks rushed to pass on cuts — although not all did so in full.
Big four fail to pass on full cut
Overnight on Tuesday, CBA and NAB both revealed that they would only pass on a portion of the cut to their customers.
CBA plans to pass on barely more than half of the 25 basis point cut, reducing the interest rate on most of its variable loans by 13 basis points. That takes its headline rate on principal and interest loans to 4.8 per cent for owner-occupiers and 5.38 per cent for investors.
Only investors on an interest-only variable loan will receive the full rate reduction.
“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,” the bank’s group executive for retail banking, Angus Sullivan, said.
CBA’s rate changes won’t take effect until 22 October.
Meanwhile, NAB said that it would pass on cuts of only 15 basis points to most customers, effective from 11 October.
Owner-occupiers on principal and interest loans will see their rate drop to 4.77 per cent and investors to 5.37 per cent.
However, NAB said it would double the size of the cut for investors on interest-only loans, slashing rates by 30 basis points to 5.67 per cent.
“This is on top of the 44 basis point reduction across June and July this year, which means customers with an average $400,000 loan could save a total of $1,740 a year,” the bank’s consumer banking boss, Mike Baird, said.
“We acknowledge our housing investors paying interest-only have some of the highest rates, which is why we have decided to cut their rate by 30 basis points.”
Then some 24 hours after the RBA decision was announced, Westpac announced that it too would withhold part of the reduction from its customers, passing on a 15 basis point cut across its variable loans.
That took its headline principal and interest loan rates to 4.83 per cent for owner-occupiers, and 5.38 per cent for investors.
It followed the other banks' lead in citing “commercial pressures of the low interest rate environment” for not passing on the full reduction.
ANZ was the last of the big four to announce rate changes. It too will withhold part of the rate cut, passing on only 14 basis points for owner-occupiers on principal and interest loans, taking the headline rate to 4.79 per cent.
Investors on interest-only loans will, however, be given the full cut, taking that rate to 5.74 per cent.
The changes will take effect from 11 October.
“We were able to match the full rate reduction in July and the majority in June, however the dynamics of record low interest rates has resulted in a reduction in variable home lending rates of between 0.14 per cent pa and 0.25 per cent pa this time around,” the bank's Mark Hand said.
By 3.45pm on Wednesday, many other prominent lenders had still to announce how they would respond to the RBA cut.
Business groups plead for banks to play ball
Immediately after the Reserve Bank announced the October rate cut, the business community pleaded with banks and lenders to pass on the full savings in order to deliver a much-needed boost to consumer spending and business investment.
“To ensure the greatest benefit is gained from the cut in the cash rate, we urge lenders to pass on the interest rate cut in full,” the Australian Chamber of Commerce and Industry’s (ACCI) chief executive, James Pearson, said following Tuesday’s move by the RBA.
“Although we are still to see the full impact of the earlier reductions in the cash rate and personal tax cuts, we believe the timing is right to boost parts of the economy that continue to struggle,” Mr Pearson added.
“With slowing economic growth and lower consumer confidence, small businesses have been doing it tough over the past year. This has particularly affected discretionary spending in small retail businesses, including cafes and restaurants.”
The Australian Retailers Association echoed this sentiment.
“We haven’t seen the jump in retail sales we were hoping for, and we are still waiting to see the flow-on effects of earlier rate cuts, tax cuts and increases to the minimum wage,” executive director Russell Zimmerman said.
“Retail trade figures in recent months have continued to lag, but we keenly await the release of August retail trade figures to see whether the other stimulatory measures have kicked in.”
He added: “It’s no secret that retailers have been doing it tough, so we hope this decision sparks a sustained resurgence in retail spending in concert with the other stimulatory measures.”
My Business will keep updating this page as more banks and lenders reveal their response to the latest interest rate cut.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.