Lenders may not pass on to home loan customers the full amount of the Reserve Bank of Australia’s imminent interest rate cut, experts say.
The RBA is tipped to cut the cash rate to a record low 1.25 per cent on Tuesday, with at least one further reduction expected over coming months.
Lenders will be under pressure to pass on all, or at least the bulk, of the RBA cuts to borrowers.
Financial comparison site Mozo director Kirsty Lamont expects banks will hold back part of the cut to recover their profit margins.
“The banks’ funding cost pressures have been easing over recent months, but it is still unlikely, in my view, they will pass on any rate cut in full,” she told AAP.
Ms Lamont said banks were still looking for opportunities to recover lost profit margins due to previously elevated funding costs.
She said they were also looking to improve their interest margins to compensate for the additional expense of increased compliance following the financial services royal commission.
“That’s why I think despite the public pressure that will be on them, we’ll see them try to hold back part of the cut next week.”
Ms Lamont said banks were likely to hold back about 10 to 15 basis points of a 25 basis points RBA cut.
Comparison site Finder’s insights manager Graham Cooke said the banks will not necessarily pass on the RBA reduction in full.
“Just three of the big four banks passed on the full cut last time around – and waited up to 20 days to do so,” he said.
“If you don’t get the full rate cut, vote with your feet.”
Ms Lamont said the average home loan rate is 4.32 per cent, well above the current lowest on the market of 3.29 per cent.
“The gap between the average rate and the lowest rates on the market is the biggest it’s been in years so there are some significant savings on offer for borrowers who are prepared to switch.”
Ms Lamont said there had been a frenzy of fixed rate cuts in anticipation of the RBA reduction, while a number of challenger lenders had also dropped their variable rates.
The last time the RBA cut the cash rate in August 2016, the big four banks all opted for slimmer mortgage rate cuts of between 0.10 and 0.14 percentage points.
NAB, CBA and Westpac all passed on in full the RBA’s 25 basis point cut in May 2016, although ANZ opted for a 19 basis point reduction.