Property owners hunt for rate cuts

The major banks didn't pass on the full rate cut, but smaller and offshore leaders are offering better deals, here's what they are.

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If you’re among the country’s property owners and mortgage holders who were hoping for a bigger slice of the interest rate-cutting cake, stop waiting because it’s not happening but the smaller lenders do offer some hope and here’s why.

Australia’s banks remain among the most robust in the world and for good reason they’re committed to protecting their profits for shareholders and mitigating risks, and this is exactly what they did on Tuesday.

The Reserve Bank of Australia, which sets the benchmark cash rate for banks, lowered rates to a new historic low of 1.5 per cent, down from 1.75 per cent. The official cash rate had been at 2 per cent at the start of this year.

But National Australia Bank, Westpac, Australia and New Zealand Banking Group and Commonwealth Bank only passed about half of the cut. To be clear, the major banks do not have to follow the RBA, but they do so to remain competitive.

According to this Fairfax Media report, CBA saved investors $400-million by not passing on the full cut.

“After the full pass through of the May rate cut it looks like we are only seeing partial bank pass through to mortgage rates this time around with a couple of major banks passing on just 0.1-0.13% this time around,” said AMP Capital chief economist Dr Shane Oliver.

“This may reflect ongoing pressure on the major banks to hold more capital, which is a more expensive source of funding, and competition amongst major banks to offer more attractive term deposits. That said, some small lenders may pass the cut on in full in order to expand their market share.”

According to Bessie Hassan of product comparison website the lowest variable rate home loans are from at 3.63 per cent and UBank at 3.74 per cent and State Custodians at 3.73 per cent. The average variable across the big four banks is 5.38 per cent.

The lowest 3 year fixed rates are from at 3.67 per cent, UBank 3.69 per cent and HSBC at 3.69 per cent.

The excuse of the major banks for not passing on the full cut: higher funding costs because of increased global risks and the need to protect the bank’s bottom line.

Now if you’re a shareholder in any of the major banks you might be happy with the decision not to pass on the full rate cut.

But if you are among the nation’s millions of mortgage holders who have an average home loan of about $350,000, then you’d probably hoping for something better.

The good news: better deals are out there and most economists are tipping even lower rates to come.

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