Rate cut renews borrower and broker optimism

Following the cash rate announcement, several lenders confirmed they would be passing on the full rate reduction to variable rate borrowers, including Athena Home Loans, which has immediately passed on the 25-bp reduction to its variable rate customers, as well as through its white label partnerships with Mortgage Choice and LMG.

Athena CEO and co-founder Nathan Walsh said that major banks typically take between 10 days and two weeks to pass on a rate cut – a delay that he suggested costs Aussie borrowers approximately $117 million in excess interest.

“At a time when the cost of living crisis continues to challenge so many Aussies, acting swiftly to bring some relief to home loaners has to be a priority for all lenders – and it certainly is for Athena,” Walsh said.

Other lenders that have confirmed they will reduce rates for all variable rate borrowers include:

• Macquarie Bank (effective 23 May)
• ANZ, CBA, NAB (effective 30 May)
• AMP (effective 2 June)
• Westpac, ING, RACQ Bank (effective 3 June)
• Pepper Money, RedZed (effective 5 June)
• Wave Money (effective 16 June)

Members of the broking industry have welcomed the move, with Anja Pannek, CEO of Mortgage & Finance Association of Australia (MFAA), saying the rate cut would alleviate financial pressure on home loan borrowers, although the effects of lower interest rates would still take some time to flow through.

“Despite global economic headwinds, now that headline inflation is within the RBA’s target, there was a widely held expectation that the RBA would lower the official cash rate in May,” Pannek said.

“After 13 interest rate rises between May 2022 and November 2023, the Reserve Bank’s move today will help many borrowers.

“Our members are dedicated to serving the best interests of their clients. They expect lenders to pass the rate cuts on in full.

“We’ve seen all major banks pass the rate cut on in full post the RBA announcement. We expect all lenders will follow suit,” she said.

Similarly, Peter White AM, managing director of the Finance Brokers Association of Australia (FBAA), said: “A full reduction in the variable rate will also allow some who were not previously able to refinance (in mortgage prison) due to the serviceability buffer rate of 3 per cent, to finally see some relief.

“New federal government initiatives promised at the election and this lowering of the rate will together help to open the market to more first home buyers and allow many more to obtain a better rate through refinancing. We again call on APRA and the government to reduce the serviceability rate by 0.5 per cent, which will make it easier for even more people.

“At this time of rate changes with so many lenders offering different products, we urge borrowers and potential borrowers to see a mortgage broker who can guide you through the maze.

“Banks act in their own interests but brokers must by law act in the best interests of their customers. It is also important to note that while the rate is important, it is not the only factor. A mortgage broker will ensure you have the loan most suitable to your individual needs and circumstances.”

Aggregator heads have also welcomed the rate move.

Commenting on the rate drop, Mortgage Choice CEO Anthony Waldron said: “The Reserve Bank’s decision to lower the cash rate to 3.85 per cent will be welcomed by borrowers and hopeful buyers…

“The cash rate cut will provide a much-needed boost to borrowing capacity for hopeful buyers who stand to see their borrowing capacity rise.”

Speaking about the underlying global factors impacting the RBA decision, he said: “The RBA board would be acutely aware of the risk that global economic uncertainty presents to the nation’s outlook and a cut to the cash rate will help stimulate demand in our economy.”

The last rate cut in February triggered a surge in refinancing and home buying activity, as mortgage holders sought out more competitive deals, according to recent Loan Market data.

Mark Haron, executive director at Connective, said that lower rates should pique borrowers’ interest.

“The RBA’s rate cut is a welcome move, but the bigger question now is: how many more could we see before the year’s end?” he said.

“For first home buyers and investors, a lower rate environment may lift confidence. But affordability remains a challenge and much of it now hinges on government policies promised during the recent election campaign.

“From our experience, rate cuts typically trigger a sharp rise in borrower inquiries, and we expect the same this time. The focus quickly shifts to how fast lenders pass on the cut. Borrowers are watching closely, and so are brokers, especially when comparing lender responsiveness.”

Indeed, data published by Cotality (previously CoreLogic) showed that historically, a combination of lower interest rates and improved sentiment leads to increased activity in the housing sector.

However, it said: “That said, we don’t expect a significant acceleration in capital gains. Several factors continue to constrain price growth, including stretched affordability, cautious lending practices, and the reality that despite 50 basis points of easing, interest rates remain in restrictive territory.”

Cotality’s research director Tim Lawless said: “While lower rates should help to make housing more accessible, further upward pressure on prices would offset the benefits of improved loan serviceability. Each of the four housing affordability metrics published by Cotality were either at record highs or equal record highs at the end of last year, a reminder of the challenges many prospective home buyers face.”

[Related: RBA cuts cash rate below 4% for first time in 2 years]