Has UBank cut interest rates after the cash rate reduction?

Australia’s official cash rate was cut to 0.75% on Tuesday, setting off a wave of interest rate changes from a number of banks. What did UBank do?

UBank has announced that it will be cutting “all our variable home loan interest rates by 0.25% p.a. from 29 October, 2019”, which is the same amount that the Reserve Bank of Australia (RBA) board cut the official cash rate by in its October meeting yesterday afternoon.  The reduction applies to all new and existing UBank customers, “including anyone in the process of applying for or settling a new variable rate”.

“This is the third RBA rate cut in 2019 that we’re passing on to our home loan customers in full,” a bank spokesperson said. “That’s a reduction of 0.75% p.a. for our customers with variable rate home loans who have been with UBank since rates began falling in June.”

How will my UBank home loan repayments be reduced?

The new rates will apply as of 29 October, a statement on UBank’s website says, and the reduction could be automatically applied to repayments.

“Depending on how your repayments have been set up, they may reduce when the new lower interest rate takes effect. If there’s a change to your repayment, we’ll send you a letter to let you know what your new repayment will be. If you want to increase your repayment, you can do this in Internet Banking,” it states.

However, the statement also notes that customers with a fixed rate loan will have to wait until the fixed interest period ends. Then, “your home loan will switch to the variable interest rate applicable at that time”.

Which banks will pass on the full cash rate cut?

Financial institutions look to the cash rate as a guide to setting interest rates on a range of products including home loans and savings accounts, meaning a change to the cash rate by the RBA typically sets off a chain reaction across the banking sector. October’s decision proved to be no exception, as it was soon followed by a flurry of public announcements about home loan interest rate reductions.

Canstar finance expert Steve Mickenbecker said he expected most banks wouldn’t pass on yesterday’s full 0.25 percentage point cut.

“With their profit margins under pressure from low rates, the cut is likely to be between 0.15% and 0.20% for borrowers,” he said.

After the cut, Australian Treasurer Josh Frydenberg said it was “the Government’s expectation that the banks will pass on this twenty five basis point rate cut in full”.

It was smaller lenders who were the first cabs off the ranks, with Athena and Homestar announcing they would pass on the full cash rate cut to their customers. Our database shows that other lenders such as Reduce Home Loans, Endeavour Mutual Bank and Freedom Lend have also lowered interest rates.

Commonwealth Bank was the first of the majors to announce a move yesterday, dropping its standard variable rate for owner-occupiers paying principal and interest (P&I) by 0.13 percentage points. Soon after, National Australia Bank cut some of its variable home loan products by 0.15 percentage points for owner-occupiers, and up to 0.3 percentage points for investors. Earlier today, Westpac reduced its rates by 0.15 percentage points, effective 16 October, 2019. ANZ announced it would “decrease all variable interest home loan rates in Australia by between 0.14% and 0.25%”, effective 11 October, 2019. The bank also cut some fixed rate loans, effective 3 October.

In the months since the RBA cut the cash rate in June this year – for the first time in three years – Canstar has noticed a slew of lenders react by lowering variable home loan rates. Fixed rates have also dropped significantly, thanks in part to the lower price banks have been paying for longer-term funding.

There have been more than 1,700 mortgage rate cuts since that first cash rate cut on 4 June, with variable loans falling by an average of 0.45 percentage points and fixed loans by 0.51 percentage points, according to Canstar’s home loan database.

Mr Mickenbecker said it was a wise idea to shop around for the best deal on home loans – as well as savings products, many of which had suffered a cut to their interest rates in tandem with the cash rate reductions.

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