HOME owners with ANZ are likely to be hunting around for a better deal, as the bank plans to hold onto a hefty chunk of this afternoon’s RBA rate cut.
The Reserve Bank of Australia slashed the official interest rate to a new historic low today of 1.75 per cent, with three of the four big banks set to pay it forward.
NAB announced within minutes of the 2.30pm decision that it would pass on the 25 basis point reduction in full, with the Bank of Queensland following suit.
The Commonwealth Bank, the nation’s biggest lender, confirmed its customers will also receive the full rate cut, tweeting the good news just after 5pm. Westpac followed shortly after.
But ANZ, which has sufferered a dramatic profit slump, will only reduce its variable home loan rate by 19 basis points— short-changing customers by close to one quarter of the cut.
The bank unveiled its plan in an obscure 6pm tweet linking to a PDF document, in which group executive for Australia Fred Ohlsson blamed a spike in wholesale funding costs.
“While we’ve absorbed this for some time and taken steps to reduce costs in our own business, higher funding costs mean we are only in a position to pass on a portion of the reduction in the cash rate to our customers,” Mr Ohlsson said in the statement.
“Our rates remain low by historical standards and our standard variable residential rates remain competitive.”
But with the other major banks feeling more generous, these words may well fall on deaf ears.
CBA’s group executive for retail banking services Matt Comyn said the bank had take note of funding costs and tightened capital lending requirements, but was “focused on delivering value for our 1.6 million home loan customers”. Those with standard rate mortgages will recieve the full rate cut from May 20. NAB customers will benefit from May 16, while NAB’s new rates come into effect on March 23.
SAVINGS AHEAD
According to Canstar, the RBA decision will save a typical homeowner $72 a month on a $500,000 loan, bringing the average standard variable home loan rate down to 4.52 per cent.
Mortgage Choice chief executive John Flavell said he wouldn’t be surprised to see the RBA cut the cash rate “at least once more” before the end of the calendar year.
RBA governor Glenn Stevens said last week’s surprisingly weak inflation data was behind the move.
“While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast,” Mr Stevens said.
He said softening conditions in the housing market meant the cut should not reignite unsustainable price growth.
In what’s been dubbed Australia’s version of the US Federal Election campaign’s Super Tuesday, the RBA’s announcement comes as Treasurer Scott Morrison gears up to deliver his first Federal Budget, and both Woolworths and ANZ release company results.
LJ Hooker chief executive Grant Harrod welcomed the RBA’s move, saying fears it would cause the property market to overheat were unfounded.
“Both the Sydney and Melbourne markets are slowing,’’ Mr Harrod said. He said the cut would encourage first homebuyers to enter the market.
“It will improve overall confidence and allow people to get ahead on mortgage repayments and increase mortgage affordability for everyone, however, we don’t expect to see another huge jump in property prices,’’ Mr Harrod said.
“Even with the rate cut, vendors will have to be realistic and cannot expect the rapid growth experienced over the past few years.’’
FIND THE BEST DEAL
Bessie Hassan from comparison site finder.com.au said the new cash rate, which ended 12 consecutive months of rate stability from the Reserve Bank, was “remarkable” and could pave the way for further savings “if you’re willing to do your homework”.
“It it is the lowest it’s ever been and a far cry from the pre-GFC days of circa 7 per cent,” Ms Hassan said.
“Borrowers may enjoy the significant benefits that can result from a rate cut — should their lender pass it on in full,” she said.
The last time the cash rate was cut in May 2015, she said, 60 per of lenders did not pass on the full cut of 0.25 per cent, making it vital to shop around.
CoreLogic spokeswoman Michelle Koper said the last thing Reserve Bank economists wanted to see was “a rebound in the rate of capital gain, particularly in Sydney and Melbourne where dwelling values have already risen 50 per cent and 31 per cent respectively since the rate cutting cycle began in November 2011”.
‘IT WAS A CLOSE CALL’
Ms Koper said the RBA decision, hotly debated by economists in the lead-up to this afternoon’s announcement, could have gone either way.
“On one hand we have economic growth tracking at three per cent per annum, a housing market where the pace of capital gains is moderating in a controlled fashion and relatively strong labour market conditions,” Ms Koper said.
“Balance this with negative quarterly inflation and a high Australian dollar and it becomes clear that this decision probably could have gone either way.”
In the end, a drop in the consumer price index coupled with falling consumer sentiment compelled the RBA’s to cut rates and head off a potential deflationary spiral.
“The big question relevant to the housing market is how much of the lower cash rate will be passed on to mortgage rates,” Ms Koper said.
“The spread between the cash rate and standard discounted mortgage rate has been widening since 2008 when there was 1.8 percentage points difference between the two rates.
“By April 2016 the spread has doubled to be 3.65 percentage points and is likely to widen further if the full rate cut isn’t passed on by lenders to mortgage rates.”
Raine & Horne chief executive Angus Raine said today’s cut made the RBA board meeting the most actively used of the century, with eight policy moves including this afternoon’s decision.
A BLOW FOR SENIORS
The RBA announcement has come as a blow to retirees relying on bank savings, who stand to lose as much as $1250 on a 12-month term deposit of $500,000, or $625 on a $250,000 term deposit.
National Seniors Australia chief executive Michael O’Neill said this would further disadvantage older Australians on low, fixed incomes.
“Many pensioners and self-funded retirees hold term deposits because of the security and peace of mind they represent,” Mr O’Neill said.
“These same people are also facing the double whammy of cuts to their pension or part pension when eligibility rules change from January next year.”
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