Interest rates: Banks unlikely to pass on full savings, but you can get a cut before RBA acts
Australians are desperate for an interest rate cut but the Reserve Bank (RBA) dropping the cash rate won’t automatically make your mortgage cheaper because the Big Four banks don’t have to follow suit. There were no surprises when the central bank held the cash rate at 4.35 per cent on Tuesday in its first announcement of the year.
However, interest rate cuts, which likely won’t come until the second half of the year, remain on the minds of under-pressure borrowers around the country.
Macquarie Bank - Australia’s fifth-largest lender - has already reduced its basic variable home loan rates by up to 0.21 percentage points, but the Big Four have a history of not passing on full cuts and borrowers shouldn’t make any assumptions they will this time.
“The home loan market is really competitive but I doubt the banks will pass on the full amount of cuts,” Money expert David Koch told Yahoo Finance.
This competition does, however, open you up to the possibility of getting a rate cut before the RBA acts.
"There are still so many people out there who have no idea what home loan rate they are paying," Koch said. “Check what rate you are paying and, if it's got a 7 in front of it, you're an absolute mug.”
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With "reasonable equity", the Compare the Market economic director said borrowers should be able to get an interest rate between 5.95 and 6.1 per cent.
Resolve Finance managing director Don Crellin agreed, telling Yahoo Finance banks would need to work harder to keep their clients, and their cash.
“Rates will be the battleground for new customers,” Crellin told Yahoo Finance. “Banks will continue to focus on market share, so expect the banks to get very competitive. Whether it's fixed or variable, changes are on the horizon as lenders jockey for position."
‘History has shown the banks don’t always pass on the cuts in full’
Koch isn’t the only one wary that the banks won’t give customers a complete rate break as soon as the cash rate is cut.
Fidelity International analyst and portfolio manager Zara Lyons told The Australian it “is a real possibility” a 0.25 per cent drop would only equate to a 0.15 per cent drop for borrowers, given they also increased the amount of interest they had been paying in savings accounts and term deposits.
“It’ll be a game of chicken on who is the first bank who wants to upset everyone by being out of cycle in terms of not passing on rate cuts,” Lyons said.
