The RBA lowered the cash rate by 25 basis points to 3.60 per cent at its August meeting and most lenders have passed this on to variable borrowers. (Source: AAP)
Two Aussie lenders have revealed they won’t be passing on the Reserve Bank of Australia’s (RBA) August interest rate cut in full to all borrowers. Most lenders have passed on every one of the RBA’s three cuts this year, but there are some big exceptions.
Aussie Home Loans, one of Australia’s biggest mortgage broking groups, has confirmed it will not pass on the 25 basis point cut in full to its Select home loan customers. From Tuesday, it will drop rates by a smaller 10 basis points on the product, which is one of four the group offers.
A spokesperson from parent group Lendi told Yahoo Finance the 10 basis point rate cut “keeps it in a competitive position for customers”.
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“We’ve fought hard to pass on all rate cuts in full this year, because we know it provides important mortgage relief for customers,” the Lendi Group spokesperson said.
“Following the RBA’s August decision, Aussie will again decrease home loan variable interest rates for customers by 0.25 per cent for the three of our four lending products.”
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Credit Union SA is the other lender that isn’t passing on the cut to all borrowers. While it is passing it on in full for owner-occupied mortgages, it said a small number of investors would not receive the full cut.
Only about 32 of the lender’s 7,500 loans will not receive the full 25 basis point cut, but may receive some level of reduction.
Aussie Home Loans did not share how many borrowers would be impacted by the smaller Select home loan reduction.
For a borrower with a $600,000 mortgage, the full 25 basis point cut would see their minimum monthly repaymetnrs drop by $89.
Mozo personal finance expert Kylie Moss told Yahoo Finance the lenders were the only two, so far, who had indicated they would not be passing on the cut in full to borrowers.
All providers on its database passed on the RBA’s interest rate cut in May. Virgin Money was the only bank that didn’t pass on the cut in February and received backlash for doing so.
“Aussie’s transparency is a good thing but if customers do feel short changed we encourage them to shop around for a better rate and deal,” Moss said.
It can also be worth customers on older home loan products to double-check to see if a rate cut has been passed on to them.
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“There is a risk that customers on withdrawn home loan products with different reference rates may not receive the same cuts as currently advertised products – lenders who cycle through different product ranges may not maintain competitiveness and existing customers may end up paying a loyalty tax,” Moss said.
Banks aren’t obligated to pass on the RBA’s interest rate cuts to borrowers and Finder head of consumer research Graham Cooke warned lenders may start to hold back if there are more cuts to come.
“Experts are forecasting more rate cuts, which could change things. Lenders might start to pull back and offer smaller cuts to customers, as we observed during the last round of cuts,” he said.
Commonwealth Bank and ANZ expect one more rate cut in this cycle, Westpac expects three, and NAB two.
Back in June 2019, Mozo found more than 50 per cent of lenders passed on the full 25 basis point cut to borrowers. However, this dwindled with subsequent cuts. Only 15 per cent passed it on in July and 9 per cent in October.
Similarly, the first rate cut after the pandemic broke out was widely passed on, with only 13 per cent not doing so in full. However, the second emergency cut was broadly not, with ANZ the only lender to pass on a partial rate cut at the time.
CBA and ANZ variable rate customers will see their home loan interest rate drop today, while NAB and Westpac will have to wait until Monday and Tuesday for the change to kick in.
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