What a series of mortgage rate cuts mean for the RBA rate discourse

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Homeowners who are waiting for the Reserve Bank rate to drop to lower their mortgage payments may need to sit there a little longer.

As the Reserve Bank prepares to provide its latest interest rate update – less than eight hours before Treasurer Josh Frydenberg provides a pivotal pandemic budget – economists are divided over whether the rates record will drop further.

Of 40 economists recently polled by Finder, 40% believe the RBA will cut the official rate from 0.25% to 0.10% over the next two months.

And a third of that small group expect a move to happen on Tuesday.

IFM Investors chief economist Alex Joiner suggested the RBA would wait until November to assess the “fiscal largesse” of the federal budget.

Meanwhile, independent economist Saul Eslake said “recent comments” from the RBA executive suggested that an October rate cut was imminent.

Mortgage rates are still moving despite the stability of the RBA

Despite the rate cuts since the emergency announcement in mid-March, the six months of inactivity hasn’t stopped banks of all shapes and sizes from lowering rates.

According to RateCity.com.au analysis, 90 lenders – representing 69% of all lenders in the market – have reduced at least one of their variable interest rates during this period, the lowest fate of the homeowner. occupant falling by 50 basis points.

The Big Four banks (which collectively have a market share of around 75 percent of mortgage loans) have cut rates by 25 basis points on average, mostly on products aimed at new homeowners.

Within this cohort, Westpac cut the rate of its lowest product by 74 basis points (but only over a two-year introductory period), while ANZ’s lowest rate has not changed. .

RateCity’s research director Sally Tindall said an RBA rate cut could prompt one of the Big Four to join a dozen smaller lenders – including Reduce Home Loans and Homestar Finance – and break the barrier of 2%.

“The current average homeowner has a rate of 3.22%, which is 0.65% more than what the Big Four banks on average offer new customers for a basic variable loan,” Tindall said.

“If the RBA cuts the cash rate by 0.15%, banks will be under pressure to do the right thing to their existing customers. “

Ms Tindall said that a 15 basis point rate cut would save the average mortgage holder $ 33 per month.

Rate cuts “not motivated by speculation”

But Canstar Group Chief Financial Officer Steve Mickenbecker believes recent moves in mortgage rates are no indicator of impending RBA moves.

Mr. Mickenbecker said The new daily the $ 120 billion expansion of the RBA’s Term Finance Facility (TFF) – which allows banks to borrow money from the central bank at lower rates – has allowed lenders to lower rates mortgage rates regardless of the RBA.

Instead of a looming rate cut, Mr Mickenbecker said a surge in refinancers and first-time homebuyers helped push rates down as new homeowner loans rose 10.7% in July.

And like The new daily has already pointed out, this has happened largely to the detriment of savers.

“It’s the low wholesale rates – which allow banks to borrow at 0.25% – that drives prices down, not speculation,” Mickenbecker said.

“Lenders are very keen on high quality business, and the lowest rates in the market are for products with a loan-to-value ratio of less than 70%, as banks are very aware of the risks of job loss or income. . “

So who would benefit the RBA if the RBA decided to make a pre-budget cut?

Most likely, the first home buyers.

“I think a lot of the cuts would be on new loans, not the entire mortgage portfolio, so existing borrowers would be left behind,” Mickenbecker said.

“And even if the RBA were to pass on a rate cut, it’s unlikely to be the whole 0.25 (percent), so it’s starting to become a pretty marginal cut.”

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