BANKS are continuing the feel the heat as three of the big four held back part of the Reserve Bank's rate cut and a leading consumer group urged mortgage holders to "vote with their feet" to move to the different lenders.
Commonwealth Bank (CBA), Australia's biggest mortgage lender, joined Westpac and the National Australia Bank (NAB) in cutting their standard variable rates by 0.20 per cent, just shy of the RBA's cut of 25 basis points. CBA and NAB's new rates will be effective on December 10, while Westpac's will kick in a week later.
ANZ is sticking with its tradition to announce its decision on second Friday of each month, which will be December 14.
But the banks' caution in passing on full rate cuts to mortgagors contrasts with their eagerness to slash the interest paid on savings accounts, data from financial researcher Canstar showed.
Between May and November, the average interest collected on a five-year term deposit with one of the big banks shrunk by more than 1 per cent - from 5.65 per cent to 4.60 per cent. Despite this, the average interest collected on home loans over the same period fell more conservatively, at just 0.78 per cent.
Canstar senior financial analyst Mitchell Watson said the banks were finding opportunistic ways to minimise their costs.
"The more they pass on to deposit holders and the less they pass on to home loan customers, the more they can ease their costs," he said.
Federal Treasurer Wayne Swan has written that banks do not have any justification for holding back interest rates. He said his government's reforms meant it was easier for customers to switch banks if they were unhappy.
Mr Swan also heaped praise on online bank ING Direct for passing on the RBA's cut in full while criticising the big banks for failing to do the same.
Consumer group Choice said the big four did not need to pass on the full cuts as they were the dominant players in the market.
"They've got 80 per cent of the business. The best way to change that is by ensuring that the business spread further across the market - that will create more competition. People should vote with their feet," Choice's chief executive Alan Kirkland said.
Financial products comparison company RateCity said the slower lending market for home loans meant customer attention was even more important for lenders.
At the same time, borrowers are not receiving the standard variable rate, but about .8 per cent less, RateCity's Michelle Hutchison said.
"If you call up and ask a lender to match a home loan that you saw and you tell them you are thinking about switching or if you call their bluff, the worst they could say is no. You could end up with even a 10 basis point discount without having to do any more paperwork or fees," Ms Hutchison said.
"We are seeing a lot of lenders willingly offering to renegotiate with individual borrowers to keep them as a customer."
Frequently Asked Questions about this Article…
Which big banks passed on the Reserve Bank (RBA) rate cut to mortgage holders and by how much?
Commonwealth Bank (CBA), Westpac and NAB cut their standard variable mortgage rates by 0.20 percentage points (20 basis points), slightly less than the RBA’s 25 basis point cut. CBA and NAB’s changes take effect on 10 December, while Westpac’s change starts a week later.
Did any lender pass the RBA’s full rate cut on to customers?
Yes — online bank ING Direct passed on the RBA’s full cut in full. Federal Treasurer Wayne Swan praised ING Direct for that decision while criticizing the big banks for holding back.
Why are banks cutting savings and term deposit rates faster than mortgage rates?
Data from financial researcher Canstar showed big banks reduced average five‑year term deposit rates from 5.65% to 4.60% between May and November (a fall of more than 1 percentage point), while home loan rates fell more conservatively (about 0.78 percentage points). Canstar’s senior analyst Mitchell Watson said banks are finding opportunistic ways to minimise costs, passing more cuts to deposit holders than to mortgage customers.
What can everyday borrowers do to get a better home loan rate right now?
RateCity recommends calling your lender and asking them to match a better deal or saying you’re considering switching. Michelle Hutchison from RateCity said borrowers often get a discount (she mentions you could secure around a 10 basis point cut) with minimal paperwork, and many lenders are willing to renegotiate to keep customers.
Are borrowers actually paying the published standard variable rate advertised by banks?
No — according to RateCity, many borrowers do not pay the headline standard variable rate; they typically pay about 0.8 percentage points less than that published standard variable rate, reflecting negotiated discounts or special offers.
What did consumer group Choice say about the big four banks and competition?
Choice said the big four banks hold around 80% of the market and don’t need to pass on full cuts. Choice’s chief executive Alan Kirkland urged customers to ‘vote with their feet’ — meaning switch lenders to increase competition and encourage banks to pass on rate cuts.
How have term deposit interest rates changed recently and what does that mean for savers?
Between May and November the average interest collected on a five‑year term deposit at the big banks fell from 5.65% to 4.60%, a drop of more than 1 percentage point. That means savers have seen a sharp reduction in term deposit returns whereas mortgage holders have seen smaller reductions in interest charged.
When will ANZ announce its decision on passing on the RBA rate change to customers?
ANZ follows a tradition of announcing its decision on the second Friday of each month; in this case ANZ’s decision was scheduled to be announced on 14 December.
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