What a string of home loan rate cuts tells us about the RBA’s rate announcement
Home owners holding out for a Reserve Bank rate cut to lower their mortgage repayments may have to sit on their hands a little while longer.
As the Reserve Bank prepares to provide its latest interest rate update – less than eight hours before Treasurer Josh Frydenberg delivers a pivotal pandemic budget – economists are divided over whether record-low rates will descend further.
Out of 40 economists recently surveyed by Finder, 40 per cent believe the RBA will slash the official cash rate from 0.25 per cent to 0.10 per cent within the next two months.
And one-third of that smaller group expects a move to occur on Tuesday.
IFM Investors chief economist Alex Joiner suggested the RBA will wait until November to assess the “fiscal largesse” of the federal budget.
Meanwhile, independent economist Saul Eslake said “recent comments” from the RBA’s executive hinted an October rate cut was imminent.
Home loan rates still moving despite RBA stability
In spite of any rate cuts since mid-March’s emergency announcement, the six months of inactivity have not stopped banks of all shapes and sizes from driving down their rates.
According to analysis by RateCity.com.au, 90 lenders – representing 69 per cent of all lenders on the market – have slashed at least one of their variable interest rates in that period, with the lowest owner-occupier fate falling 50 basis points.
The big four banks (which collectively hold a roughly 75 per cent home loan market share) shaved their rates by an average of 25 basis points, predominantly on products geared towards new home owners.
Within that cohort, Westpac slashed the rate on its lowest product by 74 basis points (but only on an introductory two-year period), while ANZ’s lowest rate has not changed.
RateCity research director Sally Tindall said an RBA rate cut could prompt one of the big four to join a dozen smaller lenders – including Reduce Home Loans and Homestar Finance – and smash the 2 per cent barrier.
“The average existing owner-occupier is on a rate of 3.22 per cent, that’s 0.65 per cent higher than what the big four banks are on average offering new customers for a basic variable loan,” Ms Tindall said.
“If the RBA cuts the cash rate by 0.15 per cent, there’ll be pressure on the banks to do right by their existing customers.”
Ms Tindall said a 15 basis point rate cut would net the average mortgage holder $33 in savings per month.
Rate cuts ‘not driven by speculation’
But Canstar group executive of financial services Steve Mickenbecker believes recent moves in home loan rates are not an indicator of any looming RBA movements.
Mr Mickenbecker told The New Daily the $120 billion expansion of the RBA’s Term Funding Facility (TFF) – which allows banks to borrow money from the central bank at cheaper rates – enabled lenders to lower home loan rates independently from the RBA.
Instead of a looming rate cut, Mr Mickenbecker said a rampant surge in refinancers and first-home buyers helped pushed rates lower, with new owner-occupier loans in July alone rising 10.7 per cent.
And as The New Daily has previously reported, it’s occurred largely at the expense of savers.
“It’s low wholesale rates – which allows banks to borrow at 0.25 per cent – that’s driven prices down, not speculation,” Mr Mickenbecker said.
“Lenders are very much after high-quality business, and the lower rates on the market are for products with a loan to value ratio below 70 per cent as banks are very conscious of the risks of people losing jobs or income.”
So who stands to benefit if the RBA decided to make a pre-budget cut?
Most likely, first home buyers.
“My thinking would be a lot of the decreases would be aimed at new lending, not across the whole home loan book, so existing borrowers would be left out in the cold,” Mr Mickenbecker said.
“And even if the RBA were to pass on a rate cut, it’s unlikely to be the whole 0.25 (per cent), so it starts becoming a pretty marginal decrease.”