The lowest mortgage rates from the big four banks and their subsidiaries

Mortgage holders should not take their home loan for granted in 2013 after lenders passed on only 133 out of 175 basis points cut from the cash rate since November 2011 on the average variable home loan, according to mortgage comparison website RateCity.com.au.

This figure is based on RateCity.com.au’s analysis of the more than 100 mortgage lenders listed on its website.

The major banks and their subsidiaries, which dominate the home loan market, have in the last few years adopted a policy of not passing on rate cuts in full – on average they pass on between 75% and 80% of cash rate cuts.

Research by Property Observer shows that the Commonwealth Bank currently offers the lowest variable rate at 5.34%, an introductory rate for the first year of the loan, after which the loan reverts to the “relevant variable rate”.

NAB’s online offering UBank offers the lowest fixed rates (5.03% for one-year and 5.13% for three-year) and the second lowest variable rate (5.37%), but these rate only apply to borrowers who are refinancing into a UBank loan.

Bankwest currently offers an advertised variable home loan offering of 5.38% – but restricted to new borrowers only.

These are the lowest fixed and variable offerings of the major banks and their subsidiaries (where advertised rates are the same, the lender with the lower comparison rate gets preference):

Lowest variable rate offerings:

Lowest one-year fixed-rate offerings

Lowest three-year fixed-rate offerings

*A comparison rate includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure.

Initially banks blamed the higher cost of raising funds on international money markets brought on by the GFC for not passing on rate cuts in full and in some instances have lifted variable mortgage rates out of cycle with the RBA.

More recently banks have blamed the need to fund a greater share of their lending from the competitive retail deposits market for their inability to pass on rate cuts in full.

This is primarily due to introduction of Basel III, the new international banking guidelines, which raise the amount of capital and liquid assets banks must hold. Banks now compete aggressively for retail deposits.

However, as noted by ANZ today, the Basel Committee has agreed to change previously proposed rules over bank liquidity requirements, loosening and expanding the criteria for securities that are eligible to meet a bank’s ‘liquidity coverage ratio’.

Under the revised rules, liquid bank assets can now include corporate bonds rated as low as BBB-, certain blue-chip equities and certain mortgage-backed securities rated AA or above.

ANZ also notes that the committee delayed the implementation of the proposed rules to 2019 from 2015.

According to RateCity.com.au, borrowers with a $300,000 mortgage would have saved extra $80 per month if lenders matched RBA cash rate cuts.

RateCity.com.au spokesperson Michelle Hutchison says this research should be a wake-up call for borrowers.

“Even though variable home loans have been falling for more than a year, which has saved borrowers $264 in monthly repayments for a $300,000 mortgage, many borrowers missed out on further savings because most lenders didn’t pass on rate cuts in full.

Hutchison expects the trend to continue this year where lenders move rates independently of the Reserve Bank.

“While further relief may be in sight, borrowers need to concentrate on the actual rate they are paying. Keep track of your home loan, compare it online to the rest of the market and renegotiate or switch to a better deal.”

At the same time that RateCity.com.au highlights banks and other lenders inability to pass on rate cuts in full, there are rumours circulating that the major banks may be considering doing the seemingly unthinkable, cutting their mortgage rates outside of the RBA rate cycle – a sign that competition in mortgage lending is heating up.

After News Ltd paper weekend reports, Brokernews.com.au reports that Westpac is considering a six-basis-point rate cut in February, regardless of whether the RBA cuts the cash rate at its February 5 monetary policy meeting.

This is subject to the out-of-cycle rate cuts not falling foul of anti-competitive new price-signalling and information disclosure rules, introducing by the ACCC (and only applying to the banking sector) in June last year.

Analysts are also expecting the banks to move out of cycle, with TS Lim of Bell-Potter Securities telling news.com.au that he’s expecting one of the big four banks to cut rates by March.

Another analyst, Stephen Walters from JP Morgan, said lower global funding costs would enable banks to make out-of-cycle rate cuts.