The four big banks have moved almost immediately to pass on the Reserve Bank’s interest rate cut in full, after the Prime Minister Scott Morrison told banks to “do the right thing” by consumers.
Commonwealth Bank and Westpac slashed rates on their variable home loans by 0.25 percentage points within minutes of Tuesday’s RBA announcement, with Westpac customers set to pocket an extra $720 a year as a result.
NAB followed by 4pm on Tuesday, saying it would lower its home loan rates by 25 basis points from March 13.
Its lowest ongoing rate is now 2.84 per cent.
ANZ followed about 30 minutes later.
Despite the speedy reaction, the rates charged by the big four are often much higher than those offered by smaller lenders, with many big four customers paying rates other than the standard variable.
Westpac consumer CEO David Lindberg said the bank wanted to provide “additional support to our small business and home loan customers at this unprecedented time”.
- See RateCity’s live list of rate cuts here.
Its home loan changes will come into effect on March 17 and drop the variable home loan rate for owner-occupiers paying principal and interest to 4.58 per cent.
CBA’s changes will come into effect on March 24 and drop the same loan type to a rate of 4.55 per cent.
Westpac’s lowest ongoing rate will drop to 2.93 per cent and CBA’s will drop to 2.97 per cent.
Smaller lenders will bring in the changes much sooner.
Neobank 86 400, which launched home loans in November, said it would pass on the full rate cut to consumers by Wednesday – dropping its standard variable rate to 4.35 per cent.
And Athena Home Loans has already passed on the full rate cut to its customers.
It dropped its variable rates to 2.59 per cent immediately after the announcement, with Homestar Finance and Reduce Home Loans also both dropping variable rates to 2.44 per cent.
Sally Tindall, research director at RateCity.com.au, said customers should consider switching banks if their lender does not pass on the full rate cut as the decision could save them hundreds of dollars a year.
“Some banks may choose not to pass on the full cut due to pressure on their profit margins. Variable rate customers should call their bank and find out what they intend to do,” she said.
“If borrowers aren’t happy with the cut their bank is passing on, they can choose to take their business walking.”
Nathan Walsh, co-founder and CEO of Athena Home Loans, said banks had cost borrowers more than $350 million by delaying passing on the rate cuts by two weeks.
“This is money that should be in the pockets of Aussie families,” he said.
The flurry of rate cuts comes after the Reserve Bank slashed interest rates to a new record low of 0.5 per cent on Tuesday afternoon.
Reserve Bank governor Philip Lowe said the 25 basis-point cut was necessary to support sustainable growth in the economy.
“The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target,” Dr Lowe said in his statement.
“The board therefore judged that it was appropriate to ease monetary policy further to provide additional support to employment and economic activity.”
IFM Investors chief economist Alex Joiner said the central bank was cutting rates because the coronavirus had forced its hand.
“Before the coronavirus was evident, the Reserve Bank had significant reservations about further cuts in interest rates, the effectiveness they would have on the economy, and the impact on confidence,” Dr Joiner told The New Daily, referring to the risks associated with rising household debt.
“But with the impact of the coronavirus on the Australian economy, we are likely to see at least one quarter of negative growth and perhaps two. So the Reserve Bank has really had its hand forced.”