The worst banks at passing on interest rate cuts

Customers who bank with smaller lenders are receiving many more rate cuts in full than if they banked with the big four, a new report has found.

Of the last five cuts to the cash rate, the National Australia Bank and the Commonwealth Bank have only passed on two in full, while Westpac and ANZ have passed on one.

However smaller lender Homestar has managed to hand borrowers all of the past five rate cuts in full, bringing its owner occupier principal and interest variable rate down to just 2.74 per cent.

On a $300,000 30-year home loan its monthly repayments are $1223.

NAB-offshoot UBank passed on the cut four times and Athena three times.

Mozo's spokeswoman Kirsty Lamont said while it's unlikely RBA governor Phillip Lowe would cut the cash rate for the fourth time when the board meet on Melbourne Cup Day, borrowers should be seeing if they could get a cheaper deal.

"If you haven't done anything since the latest cuts it's time to review your current rate against the best onto the market to see if you are still onto a winner," she said.

Ms Lamont said owner occupiers paying principal and interest were paying too much if their rate was above 3.5 per cent.

Home loan interest rates are at record-low levels in Australia as some lenders offer deals at less than three per cent.
Home loan interest rates are at record-low levels in Australia as some lenders offer deals at less than three per cent.

UBank's chief executive officer Lee Hatton said more reductions to customers' rates were possible because of the "digital-only model".

"Coupled with the fact that we don't work with brokers, we're able to put the savings directly back into our customers' pockets in the form of super competitive rates," she said.

UBank has among the cheapest mortgage deals starting from 2.84 per cent.

Mortgage online bidding service LoanDolphin's chief executive officer, Ranin Mendis, said more lenders were trying to attract customers by dropping fees and offering incentives such as cashback and frequent flyer points.

"There is also more noise and awareness around the back-book and front book pricing strategy adopted mainly by the big lenders," he said.

"This means that if you had taken out a loan from a big 4 lender on or before 2017 you most likely belong to the back-book and probably paying a higher interest rate compared to new to bank borrowers."

The report also found since 2011, Westpac was the slowest of the big four bank to pass on the cuts at an average of 13.5 days, followed by CBA at 11.7 days, ANZ at 10.1 days and NAB at 8.2 days.



ANZ 4.79%

CBA 4.8%

NAB 4.77%

Westpac 4.83%

Note: For owner occupiers paying principal and interest.