Banks’ sneaky move after rate rise

A loan expert has weighed in on the whether big or small banks are giving bang for your buck as interest rates soar.

Mortgage holders have sweated through 10 consecutive cash rate rises in less than a year as the Reserve Bank of Australia tries to force down inflation.

All of the big four banks have passed on the entire 3.5 per cent rate rise to their customers since May 2022.

However, 15 small Australian banks did not pass on the full extent of rate hikes to new customers, analysis by financial comparison website Finder has found.

The lowest total rate rise was reported at Newcastle Permanent at 2.1 percentage points, while the highest was Teachers Mutual Bank at 3.1 percentage points.

The rates provided by Finder are the minimum rate on offer which money editor Richard Whitten says is whatever a lender is offering new borrowers each month.

The story is very different for existing customers.

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“If the RBA says 25 basis points, you’re almost certainly looking at that being added to your loan,” he told NCA NewsWire.

He went on to explain that Finder doesn’t have any visibility on what lenders are doing to individual rates.

“I guess the reality is when a customer is on the books already, you can pass on those rate rises and you can sort of just get away with it because everyone else is doing it,” he said.

“They’re banking on you to not notice and not switch because most people don’t.”

Smaller banks varied greatly in the way they passed these rate hikes onto their customers.

“Most of the smaller lenders have passed on the rate rises but they might take a little bit longer,” Mr Whitten said.

“In the end, those costs are passed on to borrowers, that’s pretty hard to avoid.”

Finder analysis of 15 small banks found all but five passed on the same rate rise of 0.5 per cent in September to their standard variable loan customers.

October was wildly different, with the RBA finally easing up on customers with the first cash rate increase below 0.5 per cent in five months.

Of the small banks analysed by Finder, not a single bank passed on a 0.25 percentage point hike.

Suncorp, Heritage Bank and Bank of Queensland passed on rate hikes lower than the RBA cash rate.

The majority, however, passed on higher rate rises ranging from 0.36 to 0.5 percentage points.

For the final two months of 2022, the RBA stuck with an increase of 25 basis points to the cash rate.

Interestingly, a number of banks chose to pass on noticeably lower rates for the final two months of the year.

Shockingly, four banks refused to pass on the RBA’s rates again in December.

Bank First and Great Southern Bank passed on rate rises below 2 percentage points for two consecutive months.

When it comes to choosing between big or small banks, Mr Whitten said it was “hard to say definitively”.

“If you look at who’s offering the lowest rates in the market at any given time, it tends to be a smaller bank,” he said.

“It’s a small difference between some of the lenders, but if your starting rate is more competitive it’s probably still looking better.”

If a big bank is offering 5 per cent and a small online lender is offering 4.5 per cent rate, for example.

Then the interest rate rises by 20 basis points for the big bank and 25 basis points for the online lender.

“You’re still coming out ahead,” he said. “The lenders that offer lower rates tend to be consistently offering them.”

Tips for staying on top of your interest rate

• Refinance and switch to a lower rate loan at a competitive lender.
• Speak with a mortgage broker to help find you a better deal
• If you’re really struggling and about to miss a repayment, talk to your lender first.
• They may be able to work out a hardship arrangement and can possibly pause repayments
• Don’t wait until you miss a repayment to get in touch because it can be a red flag to lenders
• The National Debt Helpline offers free financial counselling on 1800 007 007