How did the big four respond to the October RBA rate cut?

author-avatar By on October 02, 2019
How did the big four respond to the October RBA rate cut?

Photo by Steven Su on Unsplash

Australia’s big four banks have now all announced cuts to their interest rates, following the RBA’s decision to drop the cash rate to a historic low of 0.75%.

However, none of the big four will pass on the 25 basis point cut in full.

CommBank first slashed rates on Tuesday night, quickly followed by NAB. Westpac and ANZ followed suit on Wednesday afternoon.

Treasurer Josh Frydenberg said the big four’s decision not to pass on the cut in full was disappointing.

“The Reserve Bank itself has pointed to the lower borrowing costs for the banks and their expectation that these interest rate cuts are passed on,” Mr Frydenberg told Today.

“It’s not just the Government that they are going against here, they are also going against the advice of the Reserve Bank.

“The banks have a lot of explaining to do. People should shop around, get the best deal and make their displeasure known to their banks.”

RBA Governor Philip Lowe said in an address at the RBA board dinner that the cuts were aimed at achieving economic targets which had slowed in recent months.

“We are seeking to make more assured progress towards both full employment and the inflation target,” Mr Lowe said.

“Today’s decision, together with our decisions in June and July, will assist on each of these fronts.

“In doing so, these decisions will promote the collective economic welfare of the Australian people, which we need to remember is the ultimate goal of monetary policy.”

Here’s what each of the big four banks cut rates by and their justification for doing so.

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Commonwealth Bank rate cut

Commonwealth Bank was the first of the big four to announce reductions to interest rates and announced they would be cutting their standard variable rates for home loan customers by 13 to 25 basis points.

Variable-rate changes will be effective from 22 October 2019 while new fixed-rates will be available from 3 October 2019.

CommBank will also reduce the base rate of its Netbank Saver account by 0.05% p.a., taking the rate from 0.15% p.a. to 0.10% p.a., effective from 4 October 2019.

According to Commonwealth Bank: 

  • Owner Occupied P&I Standard Variable Rate home loans will be reduced by 0.13% p.a to 4.80% p.a.
  • Investor P&I Standard Variable Rate home loans will be reduced by 0.13% p.a. to 5.38% p.a.
  • Owner Occupied I&O Standard Variable Rate home loans will be reduced by 0.13% p.a. to 5.29% p.a.
  • Investor IO Standard Variable Rate home loans will be reduced by 0.25% p.a. to 5.64% p.a.
  • Two and three-year Owner Occupied P&I Fixed Rates in the Wealth Package will be reduced to 2.99% p.a.

What they said:

Angus Sullivan, Group Executive Retail Banking Services said the bank was attempting the difficult task of balancing the needs of all stakeholders.

“Today’s announcement means our SVR for Owner Occupied customers, with Principal and Interest repayments, will be at record low levels,” Mr Sullivan said.

“As the Reserve Bank cash rate has reached record lows, we face a difficult balancing act between the multiple, valid interests of our stakeholders.

“Particularly given it is currently not feasible to pass on the full rate reduction to more than $160 billion of our deposits which are at, or near, zero rates.

“In balancing these interests, we have carefully considered how to best meet the needs of over 6 million savings customers – who may find it challenging to make ends meet with record low savings interest rates – with the needs of our 1.6 million home loan customers, who want to pay less on their mortgages; and the needs of our shareholders, many of whom are retirees who rely on our dividend.

“In this environment, while reducing the SVR for home loan customers by between 0.13% p.a. and 0.25% p.a., we have also decided to limit the base rate reduction for savings customers in our popular NetBank Saver product to 0.05%.

“These changes are in addition to the fee removals, fee reductions and pre-emptive fee alerts we have already introduced, which have helped save our customers over $415 million.

“We are also announcing a new 2.99% p.a. 2 and 3-year Owner Occupied Principal and Interest Fixed Rate, available to new and existing Wealth Package customers taking out a Fixed Rate loan.

“This allows customers who prefer certainty to lock-in this historically low rate. This means we have reduced our 2 and 3 year Fixed Rates by 0.80% p.a. since July for Owner Occupied Principal and Interest customers. ”

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) owner-occupied home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

NAB rate cut

National Australia Bank swiftly followed Commbank and announced they would decrease variable interest home loan rates by 15 basis points.

The changes will be effective from 11 October 2019.

According to NAB:

  • Variable owner-occupier Principal and Interest (P&I) loans will be reduced by 0.15% p.a. from 4.92% p.a. to 4.77% p.a.
  • Variable investor P&I loans will be reduced by 0.15% p.a. from 5.52% p.a. to 5.37% p.a.
  • Variable owner-occupier Interest only (IO) loans will be reduced by 0.15% p.a. from 5.49% p.a. to 5.34% p.a.
  • Variable investor IO loans will be reduced by 0.15% p.a. from 5.97% p.a. to 5.67% p.a.

What they said:

NAB Chief Customer Officer Consumer Banking, Mike Baird said the 15-basis point cut could save owner-occupier customers paying principal and interest on a $400,000 home loan $444 a year.

“This is on top of the 44-basis point reduction across June and July this year, which means customers with an average $400,000 loan could save a total of $1,740 a year,” Mr Baird said.

“We acknowledge our housing investors paying interest-only have some of the highest rates, which is why we have decided to cut their rate by 30-basis points.

“While these changes further support our 930,000 home loan customers, we are aware of the growing impact reductions in interest rates have on our 3 million savings and investment customers and will continue to offer competitive interest rates on savings and term deposits.

“At the same time, we are committed to investing in and improving our customer experience, and since May have scrapped around 100 fees from our products and services.”

Westpac rate cut

Westpac announced it will be cutting variable home loan rates by 15 basis points, effective from 16 October 2019.

According to Westpac: 

  • Variable home loan (owner occupier) rates will be reduced by 0.15% p.a. to 4.83% p.a. for customers with P&I repayments.
  • Variable residential investment property loan rates will be reduced by 0.15% p.a. to 5.38% p.a. for customers with P&I repayments.
  • Variable home loan (owner occupier) rates will be reduced by 0.15% p.a. to 5.42% p.a. for customers with IO repayments.
  • Variable residential investment property loan rates will be reduced by 0.15% p.a. to 5.64% p.a. for customers with IO repayments.

What they said:

David Lindberg, Westpac Chief Executive, Consumer Division, said factors like commercial pressures and providing support to Australian families were all factors in the decision.

“Westpac will be decreasing interest rates by 15 basis points for variable home loan customers, bringing our Standard Variable Rate (SVR) to the lowest we have on record for owner-occupiers with principal and interest repayments,” Mr Lindberg said.

“For an owner-occupier customer with a standard variable home loan of $400,000 on principal and interest repayments, this reduction could result in a saving of $36 per month, or $432 each year.

“Providing the support and finance to help Australians into their homes is a core part of our business strategy. Today’s announcement will assist customers wanting to get ahead on home loan repayments, as well as new home buyers looking to purchase a property.”

ANZ rate cut

ANZ was the last of the big four to cut its interest rates and announced it would decrease all of its variable interest home loan rates by 14 to 25 basis points.

The variable rate changes will be effective from 11 October 2019, while fixed changes will be effective from 3 October 2019.

According to ANZ:

  • For Standard Variable Rate Owner Occupiers paying P&I the Index Rate will reduce by 0.14% p.a. to 4.79% p.a.
  • For Standard Variable Rate Investors paying I&O the Index Rate will reduce by 0.25% p.a. to 5.74% p.a.
  • 2 & 3 year fixed rates for Owner Occupiers paying P&I will be reduced to 2.98% p.a. (with ANZ Breakfree Package)
  • 2 & 3 year fixed rates for Investors paying I&O to 3.49% p.a. (with ANZ Breakfree Package)

What they said:

ANZ Group Executive Australia Retail & Commercial, Mark Hand said the decision was based on balancing customer and business needs.

“This was a considered decision balancing the needs of our customers in a low rate environment as well as the performance of our business and our role in stimulating the economy,” Mr Hand said.

“We were able to match the full rate reduction in July and the majority in June, however, the dynamics of record-low interest rates has resulted in a reduction in variable home lending rates of between 0.14% p.a. and 0.25% p.a. this time around.

“While we recognise many customers will use this as an opportunity to pay down their existing home loans faster, we hope this provides the economic stimulus the Reserve Bank is wanting to generate.

“We have also announced a new fixed rate of 2.98% p.a. for homeowners paying principal and interest with either two or three-year terms available from tomorrow. This is the lowest residential rate on record for ANZ.”


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Alex joined Savings.com.au in 2019. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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