The first of the big four banks has revealed it will pass on rate cuts and reduce interest on business loans and fixed-term mortgages, following the Reserve Bank’s decision to slash the cash rate to a new record low of 0.1%.
The Commonwealth Bank, which this morning announced cuts to a number of business and fixed-rate home loans, has declared its decision ahead of NAB and ANZ with Westpac making its announcement shortly after.
“We know our customers want certainty, and the cuts we have announced today will help provide some certainty in the form of highly competitive interest rates for terms of three to five years,” group executive for business banking Mike Vacy-Lyle said in a statement.
From November 11, the Commonwealth Bank will lower the government’s SME loan guarantee scheme interest rate to 2.99% for secured loans and 3.99% for unsecured loans — a drop of about 51 basis points.
Rates have also been cut to 2.49% on three-, four- and five-year secured business loans, which is a reduction of about 50 basis points.
The Commonwealth Bank has also passed on cuts to homeowners, reducing a four-year fixed-rate loan for owner-occupiers paying principal and interest to 1.99% per annum.
Second in line was Westpac, which matched the Commonwealth Bank in slicing the fixed rate of four-year loans for owner-occupied customers on principal and interest to 1.99% per annum.
For the government’s coronavirus SME loan guarantee scheme, Westpac has lowered the fixed interest rate to 2.38% per annum for three-to-five-year terms and the variable rate to 3.09% per annum on new fully secured small business loans.
While ANZ is yet to confirm what rate reduction it will pass on to borrowers, a spokesperson from NAB told SmartCompany the bank’s business loan rates “are still under review”. The spokesperson could not provide a timeline of when they will be confirmed.
Elsewhere, smaller lender Athena Home Loans was quick to announce it would reduce interest rates on mortgages for new and existing customers, dropping rates to 2.19% per annum for owner-occupiers paying principal and interest, and 2.54% per annum for investors.
The move by banks to pass on the RBA’s rate cuts was expected by CreditorWatch chief economist Harley Dale who said yesterday’s cuts would likely “feed through to lower fixed rate mortgages”.
“While it can be argued that this latest interest rate cut will do little to stimulate demand, it will likely feed through to lower fixed-rate mortgages. That can provide a powerful charge to the economic recovery,” Dale said in a statement on Tuesday afternoon.
Other major banks are expected to announce their response to yesterday’s rate cuts, however, borrowers can be confident that rates will remain low after the RBA said it is unlikely to make any further adjustments to the cash rate for three years.
“Any further support the Australian economy requires will have to come from fiscal policy and quantitative easing,” said Dale.
“But then fiscal policy has been doing most of the heavy lifting in 2020.”