Credit union cuts rates, gives banks run for their money

ONE of Australia's biggest credit unions, CUA, has ratcheted up pressure on the major banks by cutting its variable mortgage interest rate by 25 basis points.

By InvestSMART · 24 Mar 2010

By InvestSMART ·
24 Mar 2010

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ONE of Australia's biggest credit unions, CUA, has ratcheted up pressure on the major banks by cutting its variable mortgage interest rate by 25 basis points.

The move comes amid comments from the big banks of continued pressure on funding costs which could translate to higher interest rates for borrowers. The interest rate cut by CUA also marks the first major move by the credit union's new chief executive, Chris Whitehead, who once headed up the aggressive lender BankWest before it was acquired by Commonwealth Bank in late 2008.

The interest rate cut, available to existing and new customers, will take CUA's standard variable rate to 6.37 per cent. This compares to 6.86 per cent for the Commonwealth and 7.0 per cent for Westpac.

Mr Whitehead said the move was in response to diminished competition in the banking sector.

"The banking sector has become more concentrated over the last few years. There is a crying need for more competition," he said.

CUA was well placed to pass on savings to customers given profits in the business were all reinvested in competitive products.

CUA has 404,000 members, 800 staff and $7.7 billion in assets under management.

In another move against the banks, AMP's lending arm detailed plans last week to lower interest rates on its entry-level home loan products by 22 basis points.

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Frequently Asked Questions about this Article…

What exactly did CUA announce about its variable mortgage rate?

CUA cut its variable mortgage interest rate by 25 basis points, taking its standard variable rate to 6.37% for both existing and new customers.

Who benefits from CUA's mortgage rate cut?

Both existing and new CUA mortgage customers benefit from the 25 basis point cut — everyday borrowers on variable home loans will see the lower standard variable rate of 6.37%.

How does CUA's new variable mortgage rate compare to the big banks?

After the cut, CUA's standard variable rate is 6.37%, compared with 6.86% for the Commonwealth Bank and 7.0% for Westpac, giving CUA a noticeably cheaper variable rate than those major banks.

Why did CUA decide to cut its mortgage rate now?

CUA said the cut was a response to diminished competition in the banking sector and reflects the credit union’s aim to increase competition and pass savings to customers.

Who is Chris Whitehead and what role did he play in the rate change?

Chris Whitehead is CUA’s new chief executive. The 25 basis point variable rate cut is his first major move at the credit union; he previously headed up BankWest before it was acquired by Commonwealth Bank in late 2008.

How can a credit union like CUA afford to cut mortgage rates?

CUA says it is well placed to pass on savings because profits are reinvested into competitive products. The credit union has scale — 404,000 members, 800 staff and $7.7 billion in assets under management — which supports its pricing decisions.

Will CUA’s rate cut force the major banks to lower their mortgage rates?

The article says CUA’s move ratchets up pressure on the big banks, but major banks have warned of continued pressure on funding costs that could push rates higher, so any response from the majors is uncertain.

Are other lenders also cutting home loan rates right now?

Yes — the article notes AMP’s lending arm detailed plans to lower interest rates on its entry-level home loan products by 22 basis points, showing other lenders are also trimming rates.