Mortgage Rates: Which Cut is the Deepest?

By Melanie Stott, 28th June 2012

We’ve seen the official interest rate drop by three-quarters of a percent in just two months – down to just 3.5%. Yay for investors! Yay for anyone married to a variable mortgage (or three); yay for anyone thinking of plunging into real estate in any form – first home owners, upgraders, all those buyers who’ve been ‘holding off’ and suffocating the market for however long, for whatever reason. 

It was thought we might even see more rate cuts before Christmas, although the word from Reserve Bank Governor Glenn Stevens appears to indicate that things really are looking up, economically – and further cuts now seem unlikely. 

“Our glass is well and truly half-full, at least half-full,” says Mr Stevens. 

“We have been grimly determined to see that the glass is half-empty. We get quite a few visitors from abroad at the Reserve Bank, and they all remark on how pessimistic people seem to be,” he told the American Chamber of Commerce in Adelaide on June 8.

 So here we are, a few weeks later, practically at the end of the financial year – and what has happened to lender rates since the announcement?

 Well the Big Four have done a bit of a dance: ANZ committed to passing on the full 25 point cut, while the Commonwealth and NAB both passed on 21 points. Westpac trailed last, agreeing to pass on 20 points (no doubt feeding the rest to its big, hungry workforce).

According to interest rates website Rate City, only three small lenders passed on the full cut in June: UniCredit WA, AMO Group and Quay Credit Union.

 “Generally most small lenders passed on about 20 basis points, and their explanations centred on higher funding costs and ongoing offshore volatility,” says Rate City’s Michelle Hutchison.

 There are, of course, some notable exceptions. The Police Credit Union quietly passed on only seven of the possible 25 basis points cut, while V Plus Home Loans passed on an eight basis point cut. Many other small lenders passed on just a 10 point cut.

 However, it’s crucial to point out that most of the small lenders were already offering variable rates a long way south of the Big Four – so to be fair, there was probably a lot less room to move.

 The Police Credit Union variable rate is now 6.44%, no doubt still making it a more attractive prospect for its members than a standard loan at the NAB (6.78%), ANZ and Commonwealth (6.8%) or Westpac (6.89%).

 Another factor to consider, according to Michelle Hutchison, is the extraordinary amount of savings big and small banks are now paying interest out on.

 “People have listened to the warnings, and they’ve saved their money. We now have a record number of household deposits, which are costing banks more than ever before,” she says.

 There are green shoots though. Indications are the rate cuts have already increased activity in sleepy sectors of the metropolitan property markets. Buyers in some states, like Queensland, are inspecting again but biding their time until new stamp duty incentives take effect on July 1 – and then, the real estate game could really be back on for young and old.

 Happy days!

  END

Melanie Stott

Melanie Stott is a property tragic, having been raised on various building sites and memorably photographed at the age of three undercoating the kitchen pantry.

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