RBA Rate Cut: What Homeowners Need to Know
As the Reserve Bank of Australia (RBA) prepares to announce its decision regarding the cash rate, many homeowners are optimistic about the potential for a third rate cut this year. Currently, the cash rate stands at 3.85%, and analysts largely expect a cut of 0.25%. However, the critical issue is whether banks will pass on the reduction to borrowers.
Canstar’s Director of Data and Insights, Sally Tindall, expressed her uncertainty about the banks’ willingness to be as "generous" this time, unlike in previous cuts earlier this year. With over 30 lenders offering variable rates below 5.50% and some fixed rates even dipping below 5%, the competition among lenders is evident.
Tindall indicated that borrowers might consider switching lenders if their current bank does not align with the anticipated rate cut. She noted that for a $600,000 mortgage, a 0.25% cut could lead to savings of approximately $90 a month, a significant amount that could instead be directed towards essential expenses like groceries.
While switching lenders may incur some costs, including state mortgage discharge fees and potential upfront charges from a new lender, Tindall suggested that homeowners could first call their existing bank to negotiate a better deal without the need to change institutions.
Historically, banks have rushed to pass on rate hikes from the RBA but have been less consistent with rate cuts. Data indicates that out of ten cuts from 2015 to 2020, only four were passed on by major banks like Commonwealth Bank, NAB, and ANZ, with Westpac only transferring two of those cuts.
According to Mozo’s finance expert Rachel Wastell, there’s scepticism about lenders passing on subsequent cuts. Banks tend to be more accommodating with initial cuts but may become reticent as economic conditions evolve and they seek to maintain their profit margins.
The current sentiment among the Big Four banks is that a rate cut is imminent, with expectations of more to follow in the coming months and years. However, opinions vary regarding the number of potential future cuts, with some banks predicting just two more, while others foresee up to four additional cuts.
Ultimately, for homeowners grappling with high interest rates, monitoring the RBA’s actions and staying informed about market offerings can provide opportunities for financial relief. If lenders do not align with the anticipated cuts, exploring other options in a competitive market could yield better financial outcomes.
