What The Interest Rate Cuts Mean For You – July 2019

After two rounds of official interest rate cuts by the Reserve Bank in the space of 2 months, the big four banks have managed to come up with basic standard variable mortgage interest rates within 6 basis points (0.06%) of each other.

On the low side, NAB’s standard variable home loan sits at 4.92%, ANZ and CBA are very close behind, tied for second place at 4.93%, with Westpac a distant fourth at 4.98%.

On a $400,000, 30-year loan, these rates equate to $1,259 in annual savings.

Following the RBA’s announcement in May, ANZ was criticised for not passing on the June rate cut in full. Having said that, ANZ made up considerable ground in the PR stakes, being the only major bank to pass on the full cut for July. Westpac, on the other hand, has failed to pass on 20 per cent of the full round of cuts.

This news was followed up with an announcement from the Australian Prudential Regulation Authority (APRA) that they remove the rule that had Lenders test if a borrower can pay back a mortgage at 7.25%. This will instead be replaced by a test to see if the borrower can pay back the mortgage at the current interest rate for the given loan + 2.50%.

With most Banks charging interest rates in the mid 3s after various discounts, it means borrowers will be tested against an assessment rate of around 6%. More in line with the current low-rate environment.

For a full listing of all changes announced so far, please see the Major Rate Changes – July 2019 section below.

What Does This Mean For You?

Owner Occupiers

If you are an Owner Occupier, you are in the box seat. You simply sit back and watch your monthly repayments decrease. Depending on your lender, you should see most of the cuts passed down. If you can afford to pay more, it’s always a good idea to smash away at that mortgage liability while the rates are low.

Property Investors

Similar to Owner Occupiers, you too will see your monthly repayments decrease. Chances are, you may not see the same rate decreases though. With APRA wanting to give more market share to Owner Occupiers and First Home Buyers, the banks are left to seek their fortunes. You will see some savings. Probably not to the same extent as Owner Occupiers.

First Home Buyers

First Home Buyers, this is definitely good news for you. Having said that, the “assessment rates” used by the Banks when assessing your suitability for a mortgage, is still set at 7.25%. The Banks are being very conservative in how they are implementing the recommendations of the Royal Commission from February. It may be months if not longer before they change their processes in line with APRA’s new rules aimed at lowering the assessment rate. This is especially true of the bigger lenders.

You will see lower repayments on the back of the interest rate cuts… You just have to qualify for a loan first! 

The advice here is to continue to scrimp and save, and to reduce your monthly expenses to as low as you can. 2-minute noodles for the next couple of months will definitely help come loan application time. It’s all about maximising your borrowing capacity.

Refinancers

If you are looking to refinance your mortgage, the same advice given to First Home Buyers applies to you. Lenders are still scrutinising loan applications looking for any reason to reject. The important thing here is to qualify for that loan. The easiest way to do this is to keep a lid on your discretionary spending.

The more you have spare at the end of each month, the more your borrowing capacity goes up, and the more options you have in terms of lenders.

Retirees

Every time interest rates are cut, retirees lose out on a bit more income. This time is no different. If you’re a retiree, you will see a similar reduction in the interest paid on your savings. Expect term deposit rates and the rates on high-interest savings accounts to come down.

The only saving grace here is that the banks typically fund 60% of their loan books through deposits. As such, they will not want to cut deposit rates too much for fear of these deposits leaving them in search of better returns. This then forces them onto the international money markets which are more expensive, and come with foreign exchange movement risks.

 

Better Value Out There

The majority of home-owners and investors are set to save over $100 a month as a result of these two interest rate cuts. Having said this, there are a number of smaller lenders offering home loans as low as 2.99%.

Please see below for more information on the major rate movements in the home loan market.

Double-Edged Sword

Any cut to the official interest rates is always a double-edged sword, as savers brace for another round of rate cuts on savings and cash deposits. The market average for “high-interest” savings accounts is sitting at just 1.51%. This is set to drop below inflation in coming days as the most recent of the interest rate cuts is factored in by the 141 Authorised Deposit-Taking Institutions (ADIs) around Australia.

Major Rate Changes – July 2019

Owner Occupied Fixed Rate Loans

Virgin is offering 3 Year Fixed 2.99% p.a. (3.53% p.a. comparison rate), min. $300K loan size, up to 90% LVR only incl. LMI, P&I repayment only, $10 monthly account fee.

Rebates & Offers

A number of lenders are still offering purchase or refinance rebates, e.g.:

ANZ is offering 300,000 Qantas Points with an eligible new ANZ home loan over $300,000 for either refinance or purchase. Applications must be submitted by 31 August 2019 with settlement must take place by 31 January 2020.

Westpac is offering $2000 refinance cashback for loans of $250K or more per property under Premier Advantage Package ($395 annual fee applies); P&I repayment only for Owner Occupied or P&I or IO for Investment. Applications must be submitted by 30 September 2019.

NAB is offering $2000 Home Buying Bonus rebate for loans of $250K or more. The loan must be drawn down (settled) by 31 December 2019.

NAB is also offering a $2000 refinance cashback offer for loans of $250K or more. The loan must be drawn down (settled) by 31 December 2019.

CBA is offering $2000 refinance rebate for loans of $250K or more. Applications must be submitted by 7 October 2019, and loans funded by 9 December 2019.

Bank Rates Following RBA Official Rate Cuts

ANZ is reducing all variable rates by 0.18% effective 14 June, and further variable rate reduction of 0.25% from 12 July 2019.

CBA is reducing all variable rates by 0.25% effective 25 June, and further reducing rates for P&I variable loans by 0.19% and IO variable loans by 0.25% from 23 July 2019.

NAB is reducing all variable rates by 0.25% effective 14 June, and further reduction of variable rates by 0.19% from 12 July 2019.

Westpac and St George and reducing all variable Owner Occupied, and variable Investment rates with P&I repayment by 0.20%, and reducing Investment IO variable rate by 0.35%, effective 18 June. They will further reduce all variable Owner Occupied, and variable Investment rates with P&I repayment by 0.20%, and Investment IO variable rate by 0.30% from 16 July 2019.

ING is reducing all Variable rates by 0.25% effective 25 June, and further reduction on all Variable rates by 0.20% effective 18 July 2019.

Macquarie is reducing all Standard Variable rates by 0.25% effective Friday 7 June for new loans and Friday 21 June for existing loans. Further reduction on Standard Variable rates by 0.20% effective 5 July for new loans and 18 July for existing loans.

AMP is decreasing the interest rates on all variable rate home loans and line of credits by 0.25% effective 21 June for new loans and 24 June for existing loans.

BankWest is reducing all variable rates by 0.25% effective 25 June 2019.

Citibank is reducing all variable rates by 0.25% effective 25 June 2019.

Executive Summary

• The big four banks have passed on between 80-88 per cent of the two RBA interest rate cuts
• Very little separates the “big four” standard variable mortgage rates, which range from 4.92% to 4.98%
• It’s not all good news. The interest rate cuts mean deposit rates for savers will be trimmed as well. Savers will lose out