All of the big four banks have announced cuts to their home loan interest rates after the Reserve Bank of Australia (RBA) dropped its cash rate to a record low of 1% yesterday.
Each of the big four will pass on the latest RBA cash rate cut – but only one of them will pass on the cut in full.
ANZ came under fire last month when it only passed on 0.18 percentage points of the RBA’s 0.25 percentage point cut, but it seems they’ve learned their lesson this time by not only promising to pass on the July cut in full, but also being the first of the big four to announce cuts.
CommBank, NAB and Westpac (in that order) were the next to slash rates.
RBA governor Philip Lowe and Treasurer Josh Frydenberg have made it clear that they expect the banks to pass on rate cuts in full to home loan interest rates.
“I expect all banks to pass on the benefits of sustained reductions in funding costs,” Mr Frydenberg said.
Here’s what each of the big four banks cut their home loan rates by, and their justification for doing so.
ANZ rate cut
ANZ was the first big bank to make a move, cutting rates almost immediately after the 2:30 pm announcement.
The bank will decrease variable interest home loan rates by 0.25% points, effective from Friday 12 July.
According to ANZ:
- For Standard Variable Rate Owner Occupiers paying principal and interest this reduces the Index Rate to 4.93%pa, from 5.18%pa.
- For Standard Variable Rate Owner Occupiers paying interest-only the Index Rate reduces to 5.48%pa, from 5.73%pa.
What they said
ANZ Group Executive, Australia Retail & Commercial, Mark Hand announced the decision to reduce variable interest rates for home loan customers by 0.25%.
“Importantly, we will apply this reduction across all our variable rate home loans. We looked at a number of factors before reaching this decision, including business performance, market conditions and the impact on our customers.
“On balance, we believe this is the right decision for our home loan customers and for our business,” Mr Hand said.
Westpac rate cut
Westpac was the last of the big four to reveal its hand, announcing it would pass on 20 basis points for owner-occupiers and 30 basis points for investors with interest only loans.
The changes will come into effect on Tuesday, 16 July.
According to Westpac:
- Variable home loan (owner occupier) rate will be reduced by .20% p.a. to 4.98% p.a. for customers with principal and interest repayments.
- Variable residential investment property loan reduced by .20% p.a. to 5.53% p.a. for customers with principal and interest repayments.
- Variable home loan (owner occupier) rate reduced by .20% p.a. to 5.57% p.a. for customers with interest only repayments.
- Variable residential investment property loan rate reduced by .30% p.a. to 5.79% p.a. for customers with interest only repayments.
What they said
Westpac Chief Executive, David Lindberg said the decision “reflects the pressures of the declining cash rate in an historically low interest rate environment”.
“Today’s announcement means our Standard Variable Rate (SVR) will be the lowest it has been in more than 45 years for owner occupier home loan customers with principal and interest repayments,” Mr Lindberg said.
“It’s critical that we continue to carefully manage our business in a sustainable way for the longer term and take into account the diverse needs of all our stakeholders.”
CommBank rate cut
CommBank announced late on Tuesday it will pass on 19 basis points to home buyers with principal and interest loans and the full 25 basis points to interest-only borrowers, effective from 23 July.
The bank also announced savers who use the bank’s most popular savings product, NetBank Saver, would receive a cut of just 15 basis points and not the full 25 basis point cut.
According to CommBank:
- Owner Occupied Principal and Interest Standard Variable Rate home loan reduced by 0.19% per annum (p.a) to a new record low rate of 4.93% p.a.
- Investor Principal and Interest Standard Variable Rate home loans reduced by 0.19% p.a. to 5.51% p.a.
- Owner Occupied Interest Only Standard Variable Rate home loans reduced by 0.25% p.a. to 5.42% p.a.
- Investor Interest Only Standard Variable Rate home loans reduced by 0.25% p.a. to 5.89% p.a.
Offer for savers:
- A special 5 month term deposit rate introduced at 2.20% p.a., a 0.20% increase (available from 8 July).
- Existing CBA pensioner customers will also be eligible for an additional 0.10% p.a. bonus on this special 5 month term deposit, taking the rate to 2.30% p.a. This bonus is available only in branch.
What they said
CBA Group Executive Angus Sullivan said the bank is focused on balancing the benefits and costs of further rate reductions.
“With official interest rate settings already at record lows, we are focused on balancing the benefits and the costs of further interest rate reductions between our 1.6 million home loan and over 6 million savings customers,” Mr Sullivan said.
“We have carefully considered how to respond to this latest official interest rate cut, given that it is not possible to pass on the full rate reduction to over $160 billion of our deposits, including deposits where interest rates are at or already near zero. We have made a deliberate choice to limit the interest rate reduction to 0.15% p.a. on our most popular savings account, NetBank Saver.
“We have also introduced a 5 month term deposit special of 2.20% p.a. together with an additional 0.10% p.a. bonus on this rate for existing CBA pensioner customers.
“We have passed on between 0.19% p.a. and 0.25% p.a. interest rate reductions for our home loan customers. We believe this combination of pricing changes delivers a fair balance of outcomes for both savers and borrowers,” Mr Sullivan said.
NAB rate cut
NAB announced it will reduce its Tailored Home Loan variable interest rates by 19 basis points, effective from Friday 12 July.
This is on top of the 25 basis point reduction last month.
Speaking before the decision on Tuesday, NAB acting chief executive Phil Chronican said it’s becoming “practically impossible” for banks to offset the drag of falling interest rates on loans by cutting the returns they offer depositors.
According to NAB:
- Variable home loan (owner occupier) paying principal and interest has been reduced by 0.19% p.a. to 4.92% p.a. from 5.11% p.a.
- Variable home loan (investor) paying principal and interest has been reduced by 0.19 p.a. to 5.52% p.a. from 5.71% p.a.
- Variable home loan (owner occupier) paying interest only has been reduced by 0.19% p.a. to 5.49% p.a. from 5.68% p.a.
- Variable home loan (investor) paying interest only has been reduced by 0.19% p.a. to 5.97% p.a. from 6.16% p.a.
What they said
NAB Chief Customer Officer Consumer Banking, Mike Baird said the 19-basis point reduction could save owner-occupier customers paying principal and interest on a $400,000 home loan an additional $552 a year.
“This is on top of the 25-basis point reduction last month, which means customers with an average $400,000 loan could save a total of $1296 a year,” Mr Baird said.
“In making this decision, we have also considered our customers who rely on income from deposits, including farmers and growing numbers of retirees, as well as those wanting to build their savings.”
“For any changes to interest rates on savings accounts following today’s RBA cash rate announcement, NAB will not decrease rates by more than 19 basis points.
“Decisions like these are difficult and reflect the current unique circumstances, with home loan rates at record lows at the same time as deposit and savings rates also being at record lows.”
Mr Baird said the bank had considered a range of factors including funding costs, particularly for deposits, as well as competitive pressures in making these changes.
“The difference between what we charge and how much it costs us to fund a mortgage remains under pressure and while the circumstances of each RBA cash rate decision will vary and has some influence on the cost of borrowing money, it is not the only funding cost driver for NAB,” Mr Baird said.