6 May 2015
CHOICE says Commonwealth Bank’s decision not to pass on the full official interest rate cut in full is cynical and signals a return to business-as-usual from the ‘big four’ in the domestic mortgage market.
Following the RBA’s decision to cut the cash rate by 0.25% to a historic low of 2 per cent, CBA will bank some of the cut by only passing on 20 basis points.
“No sooner has David Murray’s Financial System Inquiry run its course than we see the biggest Australian bank clip the ticket on savings for mortgage customers,” says CHOICE Director of Campaigns and Communications, Matt Levey.
“While we welcome the bank’s decision to raise some deposit interest rates, CBA is hardly on struggle street, and its mortgage customers deserve better,” Mr Levey says.
CHOICE says the move raises fresh questions about competition in a market where the big four banks control around 80% of home loans.
“Unfortunately this looks like a return to the trend we saw from 2011 to 2013, when the RBA dropped rates by 2% but standard variable rates only dropped 1.35% in the same period,” Mr Levey says.1
“CBA has plenty of capacity to compete for deposit customers, especially young savers, without engaging in spin and playing them off against mortgage holders.”
“This is a reminder for consumers looking to get the best value home loan to also consider smaller institutions such as mutual banks and credit unions,” Mr Levey says.
CHOICE says that Australians looking at ‘record low’ interest rates should think carefully, including by building in a buffer against future rate rises.
“A home loan is a 25 year product, and consumers should be looking well into the future, not simply at the last two years,” Mr Levey says.
CHOICE says data shows average standard home loan interest rates over the last 20 years have been above 7%, including 9% and higher at the peak of the last interest rate cycle in 2008.2
CHOICE tips on minimizing home loan risks:
Take these steps to protect yourself from getting into trouble with risky loans. Before going house hunting:
- check if you can afford the repayments if interest rates increase by three per cent
- set up a high-interest savings account and transfer your expected mortgage payment with a three per cent hike factored in every week. This will accelerate your deposit savings and show you if you can afford the mortgage.
Once you've got the loan:
- try to make regular extra repayments to get a buffer
- make lump sum extra repayments such as the refund from your tax return
- if your parents gave a guarantee, pay enough to make sure that they can get released from it as soon as possible
- consider taking out a fixed loan or split your home loan between a fixed and a variable rate.
1. See https://www.choice.com.au/money/credit-cards-and-loans/home-loans/articles/mortgage-tips
2. See https://www.choice.com.au/money/credit-cards-and-loans/home-loans/articles/banks-offer-risky-home-loans