Two non-major lenders have today announced that they will cut their variable home loan rates in light of the Reserve’s Bank’s 25 basis point cut on Tuesday.
Virgin Money announced today that it will pass on the full RBA rate cut to owner-occupiers, while investors will receive a 20 basis point reduction.
In a statement this afternoon, Virgin Money said its variable rate for owner-occupiers will fall to 3.69 per cent, while its variable rate for investors will drop to 3.99 per cent.
Meanwhile, ME Bank today announced it will decrease interest rates on its variable home loan products by 0.10 per cent.
The decrease will be effective from 23 August onwards and will put the Bank’s Flexible Home Loan variable reference rate at 4.93 per cent p.a. (comparison rate 4.95 per cent p.a.), positioning it between 0.29 - 0.36 per cent p.a. lower than the major banks.
ME Bank has stated that it retained some of the RBA’s cash rate cut to offset significant increases in other costs of doing business.
“The cost of retail deposits as a source of funding for loans has increased significantly over the last nine months,” ME CEO Jamie McPhee said.
“Retail deposit costs will increase further over the next 18 months as banks meet new legislation that require them to source more funds for loans from longer-term retail deposits, driving up market demand.
“This is particularly true for ME, which has always maintained deposit rates near the top of the market.
“The cost of funding from money markets — ‘term securitisation’ and ‘warehousing’ — has also risen sharply.”
Mr McPhee said that like any business, banks need to adjust their prices when input costs rise. He believes ME’s decision strikes the right balance between the cut to the cash rate and rising funding costs.
“ME customers will continue to receive one of the lowest standard variable interest rates in the market, while we maintain a fair return for our industry super fund shareholders and their members,” he said.
[Related: Majors under attack over meagre rate cuts]