Are banks about to give us an early Christmas present?

Lenders have been throwing a lifeline to mortgaged homeowners in the lead up to Christmas. And it couldn’t come soon enough.

The National Australia Bank, Commonwealth Bank and ANZ have cut interest rates, with Westpac likely to follow suit before Christmas.

It’s welcome relief for homeowners facing the prospect of a far leaner Christmas than they might be used to given persistent financial pressures.

By all accounts, it’s been a tough year for Australian households. Finances have been tight, and mortgages have been expensive to service amid stubbornly higher interest rates. The cash rate target is 4.35%, which has remained at this rate since November last year. 

The Reserve Bank of Australia (RBA) certainly isn’t doing mortgagees any favours, with indications that an official interest rate cut could now be months away.

The Reserve Bank of Australia wants to see core inflation back within its target range before it will cut interest rates. Picture: Getty

Some economists predict the cash rate cut could happen in early 2025, while others believe it could be delayed beyond May.

The bottom line is that the RBA wants to see the inflation rate down to between 2% and 3% before dropping the official cash rate any further. Currently, the annual inflation rate sits at 2.8%, but the RBA has refused to budge just yet, wanting to see inflation consistently stay within this range.

Interest rate drops

But competition among lenders has resulted in rate drops independent of the RBA, which meets again over 9 and 10 December before taking a break in January.

Kicking off the interest rate cuts, NAB cut its base variable rate home loan to 6.44%, which is the first cut to its rate this year. This means that NAB customers with a $500,000 loan could receive a reduction of $126 in monthly payments.

Among the Big Four lenders, ANZ’s digital-only brand, ANZ Plus, offers the top rate at 6.14% per annuum. Commonwealth follows close behind with its Digi Plus Home Loan offering, with a rate of 6.19% per annum. However, both of these loans are digital-only options, meaning borrowers can’t access a local branch to speak to a lender, and is only available for refinancers.

NAB’s new low rate is also being offered to borrowers with a maximum loan-to-value ratio of 95%, which means even those with a very low deposit can benefit.

Dashing hopes

While there were hopes that there might be more relief from the Australian Prudential Regulation Authority (APRA), these have been dashed.

The watchdog recently opted to maintain currently policy settings that will ensure the mortgage serviceability buffer remains at three percentage points.

In reaching the decision, APRA considered the high household indebtedness, a pick-up in credit growth, persistent cost of living pressures and a weakening jobs market. Balanced against these risks, the regulatory watchdog noted that bank lending standards remain sound, while non-performing loans remain low.

APRA chair John Lonsdale said the risk of financial shocks had persisted over the past year, while an uptick in non performing loans are also a cause for concern. 

“Credit continues to flow to households and businesses and is accessible to good quality borrowers. Although house price growth has eased, prices are still 40% higher than before the pandemic, and household debt is high relative to incomes, both compared to long-term trends and relative to international peers.

The APRA buffer adds an  extra hurdle for borrowers, as they scramble to find upwards of $1,000 more every month to put aside – just in case. In NSW, based on the median dwelling price, borrowers are expected to have nearly $2,000 extra per month set aside to cover mortgage repayments just in case rates increase by another 3% per annum.

Regardless of which lender you’re with, call to see if they can get the same rate cut as the best comparative loan in the market before Christmas.