Interest Rates on the Decline: Big Four Banks Adjust Home Loan Rates Following RBA Decision
The Commonwealth Bank, NAB, and ANZ have announced cuts to their variable home loan interest rates effective today, following the Reserve Bank of Australia’s (RBA) cash rate reduction in May. Westpac is expected to make similar adjustments on Tuesday.
In response to last week’s RBA decision to lower the official cash rate by 0.25 percentage points to 3.85%, over 20 lenders have revised their variable rates downwards. While many banks have issued announcements, more than 50 lenders are yet to implement the rate cuts.
Harrison Astbury, Infochoice editor and research analyst, noted that some banks would not adjust their mortgage rates until early June, with customer-owned institutions P&N Bank and the Bank of Us set to apply their rate cuts on June 10 and June 11, respectively. He mentioned that Bendigo Bank would be the largest lender delaying changes until June 6.
Current Market Rates
According to Canstar, Horizon Bank now boasts the lowest variable rate in the market at 5.25% for first-home buyers. CBA, ANZ, and Westpac’s lowest variable rates will adjust to 5.59%, while NAB’s will be set at 5.94%.
Both Westpac and NAB have reduced their savings rates ahead of mortgage rate cuts. Westpac’s savings rate adjustments are effective today, while its mortgage rate cuts are due on June 3. NAB made cuts to its two primary savings accounts prior to today’s mortgage changes.
Astbury highlighted that the timing of these changes could greatly benefit the banks financially. He estimated that Westpac could accrue an additional $2.4 million per day during the four-day gap between its savings and home loan rate cuts. This figure is derived from its variable home loan and deposit statistics, alongside a net interest margin (NIM) of 1.88% based on recent financial reports.
NAB, with a more modest NIM, could earn about $766,000 daily because of its seven-day delay in passing on the RBA’s rate cut.
Impact on Borrowers
For the average borrower with a $600,000 home loan and 25 years remaining, the monthly repayment will decrease by approximately $91 due to the cash rate cut. It’s worth noting that CBA, ANZ, and NAB do not automatically reduce repayments immediately after a rate cut—customers may need to adjust their direct debit settings themselves, which could delay changes until late June or July based on billing cycles.
Sally Tindall, Canstar’s data insights director, advises borrowers to think strategically about their repayments. If they don’t urgently need cash flow relief, retaining the current repayment schedule may enable them to pay off their mortgage faster and save on interest over time.
Astbury expressed frustration at the slow response from some lenders in passing on interest rate cuts. In contrast, entities like Unloan and Athena promptly adjusted rates in line with the RBA’s cut. Macquarie also responded efficiently, reducing both savings and home loan rates just three days post-RBA announcement.
While some banks cite outdated IT systems as reasons for delayed adjustments, Astbury criticises this rationale as insufficient. He suggests that the primary motive for sluggish reactions relates to banks safeguarding their profit margins amid competitive pressures.
Conclusion
The landscape of home loan interest rates is changing, with major lenders adjusting their rates in response to RBA’s cash rate cut. As borrowers contemplate how to manage their repayments in light of these changes, the urgency for banks to act quickly on passing rate cuts remains critical in maintaining competitiveness in the market. By capitalising on structured repayment strategies, borrowers can potentially save significantly over the life of their loans.
