RBA drops rates as they hit record-low
Borrowers will see more falls to their home loan deals after the Reserve Bank of Australia slashed the cash rate today.
Governor Philip Lowe announced a 0.25 percentage point cut to the cash rate bringing it down to a record-low of just 0.5 per cent.
The coronavirus continues to sweep the globe, putting pressure on economies who have been forced to take action.
Today's cut is the fourth cut in less than 12 months but now borrowers must wait and see how much of the cut their bank passes on.
And Westpac is the first big bank out of the blocks, announcing it is slashing variable interest rates by 0.25 percentage points for home loan customers.
Banks must pass on the RBA rate cut in full in order to do the "right thing" by Australians, Prime Minister Scott Morrison has declared.
"The government would absolutely expect the four big banks to come to the table and to do their bit in supporting Australians as we go through the impact of the coronavirus," Mr Morrison said.
"I don't see it any different to what Qantas did when we called out to Qantas and we said, 'we need your help, we need to get some people out of China, we need to get some people out of Japan', and Qantas showed up.
"And this is the same call-out, on behalf of Australians … I would expect they would do the right thing by those Australians who are looking to see any support that the Reserve Bank would be seeking to provide at this time".
Asked if doing the right thing meant passing on a quarter-point rate cut in its entirety, the PM said "yes".
Figures from financial comparison website RateCity showed on a $300,000 30-year loan the average variable rate will fall to 3.73 per cent and save the customer $42 a month, reducing their monthly repayments to just $1344.
While on a $500,000 it will provide savings of $70 per month and bring repayments down to $2240.
But RateCity spokeswoman Sally Tindall said just because there's a rate cut it doesn't mean all lenders will pass it on in full.
"In this low rate environment your bank might pass on as little as half," she said.
"After the last RBA cut in October, the big four banks passed on an average cut of 0.14 per cent to their variable rate customers.
"Now the cash rate is at 0.5 per cent, banks could opt to pass on even less."
Ms Tindall urged borrowers to wait and see how much of the cut their bank passes on and then compare their own deal to what else is available.
"If your bank is offering a lacklustre cut, it's worth calling them to haggle for a better deal," she said.
"If that doesn't work, you can always call their bluff and take your business to another lender."
Many home loan rates available are in the two per cent range and owner occupier borrowers making principal and interest repayments should be chasing deals under three per cent.
Smaller lenders Athena and Homestar immediately passed on Tuesday's cut in full to home loan borrowers and financial comparison website Mozo's spokeswoman Kirsty Lamont expects more lenders to do the same.
Athena's variable rate deal is now just 2.59 per cent and Homestar's Star Essential deal is just 2.49 per cent.
"If the banks were to pass on today's official interest rate cut in full, average variable home loan rates and owner occupiers could be $56 a month better off," Ms Lamont said.
Aussie chief executive officer James Symond said the rate cut indicated the economy and jobs market still needed a boost.
"Dropping the cash rate to this unprecedented low is an indication that the RBA is continuing its efforts to boost the economy and it suggests the current uncertainty in global markets, slowing retail sales and the consequences of the bushfires and coronavirus have been key factors," he said.
"It's a historic time for homeowners and those looking to enter the property market - the power is in their hands when it comes to getting a good home loan deal."
CoreLogic figures released this week showed housing values climbed by 1.1 per cent across five of the nation's capital cities reaching a record high.
The strongest gains for the month were in Sydney (up 1.7 per cent) and Melbourne (up 1.2 per cent).
Annually Sydney and Melbourne received double-digit annual growth rates with values climbing up 10.9 per cent and 10.7 per cent respectively.
Home Loans Experts' managing director Otto Dargan said that most banks would be unlikely to pass on the fall in full.
"We're not expecting the banks to pass on the full rate cut because the part of their funding that comes from deposits like savings accounts can't have rates go much lower," he said. "Once your lender has announced if they are passing on the rate cut then you can decide if you want to stay or refinance."