Will banks pass on rate cuts?

By Graeme Salt

It’s been 15 months since the Reserve Bank changed interest rates, but now, finally, we are getting some changes.

Today’s interest rate cut shows that the economy is moving into a new phase and it will have a big impact on home borrowers.

Today’s interest rate cut could be (though it’s far from guaranteed) one of a few that Reserve Bank announces this year.

So, the question is how quickly will the banks pass the cuts onto homeowners (if at all)?

A review by financial comparison firm Canstar of the past decade looked at how many of the 10 rate cuts during that period the major banks had passed on either in full or partially.

It found Commonwealth Bank, ANZ and National Australia Bank had delivered borrowers just four of those 10 cuts in full, while Westpac fared even worse by passing on just two rate reductions in their entirety.

In February 2015, Westpac did deliver borrowers a rate cut of 28 basis points, which slightly exceeded the official decline by the RBA of 25 basis points.

Canstar also found banks typically passed on rate changes between 10 and 14 days after an RBA move.

It’s common place for the banks not to pass rate cuts on fully (there’s more than just the Reserve Bank cash rate that influences the rates we pay for our home loans).

However, generally, the Big Four banks tend to be less hungry for business and so are often not as good as passing on rate cuts as the mid-tier lenders; lenders such as Suncorp, Macquarie or ING.

If things follow the usual pattern, the medium sized lenders will be more aggressive than the big banks in passing on rate cuts.

So, what that means for you is that now is the time to monitor what your bank does with your home loan rate.

If your bank is not passing on rate cuts in full, the first thing you should do is call them and try to negotiate.

If your bank refuses to drop rates, then you need to talk to your broker who can advise where to take your loan.  We are already seeing some very sharp under-the-table rates come through from smaller lenders -it’s the best way of keeping the Big Four honest.

Graeme Salt is an award-winning mortgage broker.  For a no-obligations consultation on your home loan needs, please contact him on 02 9922 5055