Non-majors begin releasing rate cut decisions

Marking the second month in a row in which the cash rate had moved – after nearly three years of inertia – the response from lenders this month has been markedly slower and less enthusiastic.

While many lenders passed on the 25-basis-point rate cut reduction to their mortgagors last month (according to Mortgage Choice CEO Susan Mitchell, around half of its panel of lenders passed on the full rate reduction), fewer have been keen to implement this month’s rate decision into their pricing.

Despite half of the big four banks passing on the full cut last month, just ANZ has agreed to do so this time. 

For example, CBA and NAB have instead passed on 19 basis points, citing the need to balance the benefits and costs of mortgage borrowers and savings customers in an already record-low interest rate setting.

The rate announcements from the non-major lenders have also come through much slower this month, as lenders take their time to consider the impact of reducing home loan rates by 50 basis points in two months.

Newcastle Permanent

Newcastle Permanent is the latest lender that has affirmed it will pass on the Reserve Bank’s full rate cut, reducing standard variable home loan interest rates by 0.25 percentage point p.a. for all home loan products (both owner-occupier and investor, and for interest-only loans), effective from Monday, 29 July 2019.

According to the building society, the variable home loan reduction represents an approximate saving of $53 per month for customers with a $350,000 home loan over 30 years, or $15 per month for every $100,000 borrowed over the same term.

The lender’s new CEO, Bernadette Inglis, commented that the lender was “proud to remain customer-owned and customer-focused,” adding that “customers of the major banks continue to realise they come second to shareholders’ dividends”.

She continued: “Customers may choose to maintain the amount they pay off their home loans, effectively paying off their loan balance sooner, or enjoy the benefit of some extra space in their monthly budget.

“Newcastle Permanent is a customer-owned banking institution. We don’t pay dividends to shareholders, we retain all our profit within the business to maintain our outstanding financial strength and deliver value to customers in the form of exceptional service, award-winning products and competitive interest rates.”  

ING

Meanwhile, ING has said it will decrease rates by 20 basis points for all new and existing customers with an ING variable rate home loan from 18 July.

Suncorp

Suncorp has followed the lead of CBA and NAB, saying it will reduce its variable interest rates for owner-occupiers and investors by 0.19 percentage point per annum from 19 July.

Like last month, the non-major bank said the decision to not pass on the full rate was not taken lightly, but Suncorp CEO for banking and wealth, David Carter, said he believes “it is the right one for [its] mortgage and deposit customers”. 

“Interest rates are at the lowest they have been in decades, which can deliver positive benefits for existing mortgage-holders and people wanting to get into the property market,” Mr Carter said. 

While he suggested that Suncorp’s rates remained among “some of the most competitive in the market,” he added that the lender couldn’t “overlook the challenges of a low rate environment on our deposit customers, which is why we continue to support our deposit customers through a range of highly competitive savings products”.

He urged customers that have questions about the rate announcement or how it impacts them to contact Suncorp so it can “ensure they’re receiving the most appropriate support for their circumstances”. 

ME

ME has withheld a larger portion of the 25-basis-point reduction in the official cash rate, revealing that it will cut interest rates for all existing variable home loan customers by 0.15 percentage point from 23 July.

“In setting interest rates, ME considers the needs of all stakeholders while ensuring the pricing of all products remains sustainable,” the non-major bank said in a statement.

‘We expect better from our banks’

Treasurer Josh Frydenberg last month voiced his “disappointment” at some of the lenders choosing not to pass the full rate cut on to customers and this week reiterated his stance on the matter.

In several media interviews on Tuesday (2 July), Mr Frydenberg reiterated his expectation that lenders pass on the full rate, telling David Koch on Sunrise: “It is fair to say that the Australian people are fed up with their banks. They have seen a reduction in their own funding costs and there is an expectation on behalf of their customers that they would pass on in full to them the benefits of these sustained reduction in funding costs.”

Speaking of the June rate cut movements ahead of the RBA announcement, Mr Frydenberg noted that the Commonwealth Bank of Australia and the National Australia Bank both moved and passed on that rate cut in full last month, adding: “ANZ was extremely disappointing and so too was Westpac in not passing that on in full. Let’s see what they do if there is another cut.”

He continued: “[A]s you know, it varies from bank to bank, but this is something the banks have to explain to their customers, and people need to be encouraged to shop around to get the best possible deal, but it was a bit rich of the ANZ bank to say that they were trying to protect their depositors but not reducing their rates in full, following the last move by the Reserve Bank. 

“So, we do expect better from our banks.”

Later that morning, on The Today Show, Mr Frydenberg also outlined that the rate cuts were a result of the RBA “redefin[ing] what, for them, is full employment”.

He explained: “Previously, they’ve seen full employment at around 5 per cent. Today it’s 5.2 per cent. Now they’re saying it’s got a four in front of it, so there is spare capacity in the labour market and they want to encourage more employment and they’re not worried about subsequent inflationary concerns. 

“That’s why they’ve moved and – in the words of the RBA governor – they didn’t move because of a deterioration in the economic outlook. 

“So, the fundamentals of the Australian economy remain sound: unemployment is lower than when we came to government, we have a AAA credit rating, we have a relatively low debt to GDP ratio compared to other countries and we saw 40,000 new jobs being created last month. So, we continue to grow, but we still face some challenges,” he said.

[Related: Lenders respond to RBA move with mortgage rate cuts]