Big banks warned of complacency as challenger lenders pull ahead with mortgage rate reductions
The Reserve Bank of Australia (RBA) decided not to test the market’s patience when it cut the cash rate by 0.25% on Tuesday.
It marked the third rate cut of the year – following the widely unexpected decision to hold in July – to bring the central bank rate to 3.6%, the lowest point since March 2023.
While a reduction was widely anticipated, a sliver of doubt remained given the Monetary Policy Board’s unpredictable behaviour in 2025, not to mention lingering concerns over trimmed mean inflation heaviness.
Numerous major, non-bank and non-bank lenders swiftly announced plans to pass through the 25-basis-point cut to their variable-rate home loans.
Broking industry reactions also came thick and fast, with the consensus being of overall positivity to the announcement.
A rush to the head
“Mortgage brokers can expect a rush of enquiries leading into the spring property season after the Reserve Bank of Australia reduced the cash rate today,” said Loan Market.
The national mortgage brokerage had already recorded a 53% year-on-year increase in pre-approved buyers throughout July; expect more to come, seems to be the forecast.
“Customers are looking for every edge and that starts with reaching out to brokers to know exactly what they can borrow and afford to repay,” said Loan Market chief executive David McQueen.
“The cash rate cut It will also bring more relief for mortgage holders who have been diligently meeting repayments while rates have been high."
Following Tuesday’s interest rate cut, a buyer earning $120,000 a year could see their borrowing capacity increase by around $42,000 compared to the start of the year, McQueen estimated.
Fixed-rate loans ‘firmly out of fashion’
Mortgage Choice chief executive Anthony Waldron (pictured, left) said: “The RBA’s decision to cut the official cash rate will be welcomed by borrowers and buyers around the country, following last month’s surprising decision to keep the cash rate on hold."
By Waldron’s calculations, If lenders pass on the 25-basis point cut in full to a 6.01% interest rate on a $600,000 loan balance, it will mean a saving of nearly $100 a month.
Waldron highlighted that fixed-rate home loans are “firmly out of fashion”, with a walloping 98% of Mortgage Choice submissions in July being for variable-rate loans.
“The latest cash rate cut should boost the borrowing capacity of buyers hoping to enter the market this spring,” Waldron said. “Buyers hoping to succeed in a hot market should get expert advice early on… A mortgage broker will help you understand how the latest cut to the cash rate will impact your borrowing power, and when you’re ready, they’ll help you get pre-approved for a home loan so you can make an offer or bid with confidence.”
Don’t get complacent, banking majors told
Anja Pannek (pictured, centre), chief executive of the Mortgage and Finance Association of Australia (MFAA), reminded lenders that the broking community “would expect lenders to deliver the full benefit of any rate reduction to their clients”.
“Our members continue to be busy supporting borrowers following the RBA cash rate cuts in February and May,” said Pannek. “This latest cut will lift borrowing capacity and improve mortgage serviceability. It will encourage more Australians, whether first home buyers, investors, or refinancers, to contact an MFAA accredited broker and discuss how they can get on the property ladder or get a better mortgage deal.
Peter White, managing director of the Finance Brokers Association of Australia (FBAA), warned banking majors against being complacent.
“While the major banks have many good products, borrowers should never think that they are the only source of lending,” said White. “In fact very often a non-bank lender can meet a customer’s needs for either a better rate or a more flexible loan depending on the requirement.”
Shifting sentiment
Speaking of the non-bank lenders, Barry Saoud (pictured, right), Pepper Money’s general manager mortgages and commercial lending, believes Tuesday’s rate cut “marks a clear shift toward more supportive monetary conditions”.
Saoud called the Board’s decision “welcomed news” for the housing market. “Lower rates are expected to boost borrowing capacity, lift buyer sentiment, and re-energise demand.”
Pepper Money was among the first of the non-bank lenders to announce a reduction in variable mortgage rates on Tuesday.
“Certainty fuels confidence, and confidence creates momentum,” said Saoud. “We’re already seeing further improvement in borrower appetite to buy, refinance, or invest. A stable and easing rate environment helps us deliver really helpful loan options with speed and certainty.”
What happens next?
The board will next convene on 30 September to vote on whether to cut rates for the fourth time this year.
In the coming weeks, markets will begin pricing in their expectations of what the Board will do next.
Each of the Big Four banks anticipates at least another 25-basis-point interest rate reduction by the end of the year, but when that happens is up for debate.
“The outlook remains uncertain,” said the RBA on Tuesday. “There are uncertainties about the outlook for domestic economic activity and inflation stemming from both domestic and international developments.”
Maintaining price stability and full employment is the priority for the RBA; a September interest rate cut might not be the answer.
