Majors put heat on small lenders over rate cuts

With margins squeezed and competition high amongst lenders, there is greater pressure for individual lenders to come up with ways to stand out from the pack. With little difference in product features and interest rates lenders have looked at other avenues to obtain an edge.

It has become quite clear over the past two months that the major banks and other national lenders have chosen to focus on passing on the recent rate cuts very quickly to borrowers. Historically, these reductions in rate have taken more than a month to reach the borrower whereas recently the average time is approx one week.

This focus on speed also sends a message to the consumer that the major banks are trying to repair some of the damage that has occurred over recent years, endeavouring to restore their image in the eyes of customers.

On the other side of the coin are the state-based or regional lenders who in the past have had the luxury of sitting back comfortably and observing the choices of the major lenders before making a decision.

Indeed, some of the smaller credit unions and building societies continue to delay pricing committee decisions purely to wait to see where competitors rates move to before reducing their own rates.

This procrastination can mean a difference of up to ten days extra to pass the rate cut on their existing borrowers. The impact on the consumer is in the vicinity of $30 based on a mortgage of $150,000 and taking into account the 0.75 point reduction enjoyed so far this year.

Smaller lenders may well come under more pressure to anticipate rate changes and follow suit with the larger players. Borrowers need to think ahead though, and remember that the grass is green when rate cuts are in there favour. It will be very interesting next time interest rates increase to see how quick it's passed on.

See BankChoice's Summary table of variable rate changes