Another lender took the surprising step of cutting interest rates to ease some of the pain of rising costs, but there’s a catch.
Since September 1, Virgin Money has announced that it will reduce its variable interest rate by up to 0.2 percentage points, but only for new customers.
For new customers taking out a loan on Thursday, variable owner-occupied housing loans were reduced by 0.2 percentage points, while variable investment housing loans fell by 0.1 percentage points.
The announcement follows similar moves by Australia’s biggest lenders, including Commonwealth Bank of Australia, Westpac, NAB and ANZ.
Since the Reserve Bank of Australia began sensationally raising interest rates in May, data from RateCity shows that 23 lenders have now cut their variable rates for new customers.
RateCity research director Sally Tindall said lenders were being forced to cut rates to keep up with competition.
“With refinances at record levels and billions of dollars in fixed loans coming due, lenders are cutting variable rates to attract new borrowers,” she said.
However, the tariff expert warned that existing customers do not get the same discounts or perks.
“Since the RBA started to increase in May, existing variable customers have seen their rates rise by 1.75 percentage points, but the big four banks have given discounts to new customers in parallel,” Ms Tindall said.
Borrowers who stuck with their bank for several years could be paying hundreds of dollars more each month on their mortgage than if they had shopped around.
The spread between variable rates for existing homeowners and rates for new customers has been widening since September across the mortgage industry.
RBA data revealed the gap widened to a staggering 0.47 percentage points in June. Ms Tindall said the spread was likely to increase as the cash rate continued to rise.
“If you believe that as a loyal, long-time customer your bank is doing the right thing for you, check to see if that’s the case,” she said.
“The results might surprise you.”
RateCity suggests comparing your variable home loan rate to the rate offered to a new client by the same lender.
“If that rate is lower than what you’re on, your bank takes you for a ride,” Ms Tindall said.
Interest rates have been the subject of much speculation, with the RBA choosing to raise rates in a sensational fashion four times over the past few months.
The continued rises have led to a rapid increase in the price of fixed rate mortgages and many Australians have instead turned to variable mortgages which allow for more flexibility.
New figures from the Australian Bureau of Statistics show that the proportion of new home loans issued at fixed rates has fallen significantly, from 46% in July 2021 to just 9%.
The variable interest rate cuts come as the RBA prepares to meet next Tuesday.
Experts predict that the authority will raise interest rates again, with some economists predicting a 0.5% hike while others predict a 0.25% hike.