Stephen Letts | ABC | 3 July 2019

https://www.abc.net.au/news/2019-07-03/what-the-rate-cuts-mean-for-you/11273500?section=business

Who said Australia’s big four banks run an oligopoly?

Key points:

  • The big banks have passed on between 80-88 per cent of the two RBA rate cuts
  • Very little separates the ‘big four’ standard variable mortgage rates, which range from 4.92pc to 4.98pc
  • The rate cut means deposit rates for savers will be trimmed as well

After two rounds of official rate cuts from the Reserve Bank, somehow, by happy coincidence, the big four have managed to come up with basic standard variable mortgage rates within 6/100th of a percentage point.

At the margin, NAB’s standard variable home loan is the cheapest at 4.92 per cent, ANZ and CBA slide in right behind at 4.93, with Westpac the outlier at 4.98pc.

For the record, among the big banks, NAB is also currently offering the cheapest discount variable rate (4.07pc) and, with CBA, has the equal lowest variable rate in the market (3.35pc).

Australia joins low rate club


With the cash rate down to a fresh low of 1 per cent, Australia has entered what’s been dubbed the “era of irrationality, impotence and inequality”.

Over the course of the two cuts CBA and NAB have been the most generous to mortgage holders, passing on 88 per cent and keeping 12 per cent for themselves.

On a $400,000, 30-year loan, that equates to $1,259 in annual savings, while the NAB and CBA trousered $169.

ANZ was slow out of the blocks with the first cut (and got kicked from pillar to post for its efforts) but made up considerable ground in the PR stakes, being the only major to pass on the full cut this time.

Westpac has failed to pass on 20 per cent of the full round of cuts.

Impact of two rounds of rate cuts

LENDERJUNE RATE CUTJULY RATE CUTTOTAL RATE CUTANNUAL SAVINGSMISSED ANNUAL SAVINGS
CBA0.25pc0.19pc0.44pc$1,259-$169
Westpac0.2pc0.2pc0.4pc$1,133-$279
NAB0.25pc0.19pc0.44pc$1,239-$166
ANZ0.18pc0.25pc0.43pc$1,215-$195

Source: RateCity, Note: the above calculations are based on a person with a $400,000, 30-year loan, on a discounted variable rate with one of the big four banks. Missed savings are calculated based on what a customer would have saved if the bank had passed on both rate cuts in full.

Better value around

RateCity research director Sally Tindall says the majority of variable rate home owners are set to save over $100 a month as a result of these two cash rate cuts. 

However, she points out that with smaller lenders offering home loans as low as 2.89 per cent, it doesn’t mean borrowers are on “a good wicket”.

“Any cut to the cash rate is always a double-edged sword, as savers brace for another round of deposit rate cuts,” she said.

“RateCity’s average savings rate is 1.51 per cent but this is set to drop below inflation in coming days as this most recent cash rate cut gets passed on.”

On RateCity’s survey the cheapest home loans come from some of the smallest lenders:

  • Reduce home loans: 2.89pc 
  • Homestar Finance: 2.99pc 
  • Athena home loans: 3.09pc

Banks will be less generous next time

JP Morgan bank analyst Andrew Triggs said if the RBA cut rates again, as was assumed by the market, the big banks would hold back a much larger percentage of the move.

“Although the impact on profitability looks small — at less than 2 per cent — any further rate cuts from here will require the banks to hold back much more, given that it looks as if online saver base rates have hit their lower bound,” Mr Triggs said.

JP Morgan’s internal economists have forecast the RBA still has two more 25 basis point cuts to a cash rate of 0.5 per cent in the current cycle.

However, Mr Triggs said the major banks’ deposit rates were unlikely to fall by the full 25 basis points. 

The CBA has said it will limit the reduction in its NetBank Saver base rate to 0.15 percentage points and will increase its five-month term deposit special by 0.2 percentage points, while NAB said it would not reduce deposits rates by more than 0.19 percentage points.

According to the RBA data, banks generally enjoyed a 0.5 percentage point margin, or better, on deposits prior to the two rate cuts.

Morgan Stanley’s Richard Wiles said from a bank investors’ point of view, the major banks tended to outperform the market leading into the first rate cut, but then subsequently underperformed.