HSBC & ME Bank reduce interest rates in wake of cash rate cut

HSBC and ME have both announced they will lower a range of home loan interest rates in response to the cash rate cut earlier this week.

The Reserve Bank of Australia (RBA) Board voted to cut the cash rate by 0.25 percentage points on Tuesday, down to the historic low of 0.75%. Since then, a number of lenders have announced home loan rate cuts.

How much could I save on my HSBC home loan after the cash rate cut?

HSBC responded today by partially matching the RBA’s cut, reducing standard variable rates for owner-occupiers paying principal and interest (P&I) by 0.15 percentage points.

The changes to HSBC’s standard variable rate home loans will be effective from 21 October for new and existing customers, and include the following:

  • Owner-occupier P&I: -0.15 percentage points to 4.76% (comparison rate to be advised)
  • Owner-occupier interest only (IO): -0.15 percentage points to 4.76% (comparison rate to be advised)
  • Investor P&I: -0.15 percentage points to 5.38% (comparison rate to be advised)
  • Investor IO: -0.20 percentage points to 5.63% (comparison rate to be advised)

The reduction would save an owner-occupier paying P&I $432 in annual mortgage repayments on a $400,000 loan with a 30-year term, according to Canstar’s mortgage repayment calculator.

How much is ME cutting its home loans by after the cash rate cut?

ME Bank also responded to the RBA’s change today by cutting rates for all of its variable home loans by 0.15 percentage points, effective from 24 October for new and existing customers.

In the same announcement of cuts for home loan borrowers, ME said it would reduce the interest rate on its Online Savings Account product by 0.15 percentage points on 8 October.

Article ME_ME HSBC cuts October 2019
Source: TK Kurikawa (Shutterstock)

Which banks will pass on the full cash rate cut?

Treasurer Josh Frydenberg has slammed the big banks in particular for not passing on the full cash rate cut to borrowers, saying “people should shop around” and “make their displeasure known” to their bank.

The big four announced they would only partially follow the RBA’s lead in reducing their standard variable rates by an average of around 0.14 percentage points this month.

Canstar’s database showed it was smaller lenders who were the first cabs off the rank to reduce home loan rates, with Athena and Homestar announcing they would pass on the full cash rate cut to their customers. Reduce Home Loans, UBank and Freedom Lend have also announced interest rate cuts.

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.

In the months since the RBA cut the cash rate in June this year – for the first time in three years – Canstar 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.

Canstar finance expert Steve Mickenbecker said he expected most banks wouldn’t pass on October’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.

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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Image source: Willy Barton (Shutterstock)

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