This article is from the Australian Property Journal archive
THE latest interest rate reduction is good news for borrowers with mortgage rates falling below the 3% mark to a new low of 2.89%, provided the banks pass on the cut in full.
RateCity research director Sally Tindall said if banks pass on the latest 25 basis point cut in full, it will translate into savings of $58 a month or $692 a year for the average mortgage holder.
The pressure is on the banks to pass on the rate cuts in full after they failed to last month.
Last month 47 lenders passed on the RBA rate cut in full, 32 passed on part of the cut and seven yet to move significantly, according to Mozo.
“Bank funding costs in Australia have also declined, with money-market spreads having fully reversed the increases that took place last year,” Governor Philip Lowe pointedly said yesterday.
But National Australia Bank chief customer officer consumer banking Mike Baird hit back.
Baird said the bank had assessed a range of factors including funding costs, particularly for deposits, as well as competitive pressures in making these changes.
“The difference between what we charge and how much it costs us to fund a mortgage remains under pressure and while the circumstances of each RBA cash rate decision will vary and has some influence on the cost of borrowing money, it is not the only funding cost driver for NAB,” he said.
Mozo director Kirsty Lamont agreed with the RBA and said by holding back some of the cuts since 2016 the Big 4 banks’ have pocketed approximately $125 million per month in additional revenue – $3.86 billion in total.
“When you consider that last month ANZ and Westpac pocketed a $193 million annual windfall by holding back some of the official rate cut, it’s hard to see the other big banks staring this gift horse in the mouth again.
“As well as holding back a portion of the official cut, the big banks all delayed the effective dates of their rate relief. A move that saw them collectively bank $108 million,” Lamont said.
Combined with the June move, the total 50bps cut will save up to $116 a month or $1389 a year.
After copping bad publicity for passing only 0.18% last month, ANZ Bank was the first of the big four off the rank yesterday, this time passing on the full 0.25% cut, reducing its variable rate to 3.63%, but it is effective from July 12.
Commonwealth Bank waited until the evening to announce it is passing on only 0.19% for owner occupier with principal and interest mortgage to 4.93% and investors to 5.51%.
NAB also passed on 0.19%, reducing owner occupier and invest on principal and interest loans to 4.92% and 5.52% respectively, effective July 12.
The non-major lenders boast the lowest variable rate, Athena reduced its mortgage by 0.25% to 3.09% effective immediately.
The mantle of the most competitive rate goes to Reduce Home Loans, which cut its variable mortgage by 0.20% to 2.89%.
RateCity analysis shows if the average mortgage holder on a rate of 3.50% put $58 a month back into their loan, they could save almost $15,000 in interest and shave up to 1 year, 7 months off a 30-year home loan.
Impact of 0.25% July rate cut
| July cut (-0.25%) | ||
| Loan Amount | Monthly savings | Annual savings |
| $300,000 | -$43 | -$519 |
| $400,000 | -$58 | -$692 |
| $500,000 | -$72 | -$866 |
| $600,000 | -$87 | -$1,039 |
| $750,000 | -$108 | -$1,298 |
| $1,000,000 | -$144 | -$1,731 |
Based on a 0.25% rate cut on RateCity.com.au’s current average rate of 4.14% for owner-occupiers paying principal and interest over 30 years.
Impact if both June and July rate cuts are passed on in full
| 0.50% cut (June and July) | ||
| Loan Amount | Monthly savings | Annual savings |
| $300,000 | -$87 | -$1,042 |
| $400,000 | -$116 | -$1,389 |
| $500,000 | -$145 | -$1,736 |
| $600,000 | -$174 | -$2,083 |
| $750,000 | -$217 | -$2,604 |
| $1,000,000 | -$289 | -$3,472 |
Based on a 0.50% rate cut on RateCity.com.au’s previous average rate of 4.31% for owner-occupiers paying principal and interest over 30 years.
