Almost 1 in 3 borrowers have negotiated a lower rate: RBA

In its latest bulletin, the Reserve Bank of Australia (RBA) explained that although lenders have been passing on the central bank's consecutive cash rate increases in full to variable reference rates, very few borrowers pay rates as high as these.

“Instead, borrowers are offered, or negotiate, a discount relative to these reference rates,” the RBA said, pointing to strong competition in 2022 that saw banks vie for new and externally refinancing borrowers, particularly those of higher credit quality, in addition to adjusting discounts to retain existing borrowers.

“Liaison suggests that around 30 per cent of variable-rate borrowers have renegotiated a lower rate on their housing loan with their existing lender since May.

“Many borrowers have also refinanced with a new lender, with major banks extending cashback offers to customers of around $2,000–$4,000.”

However, some fear that fixed-rate borrowers may be unable to negotiate for a cheaper variable rate when their current loan term expires.

Yellow Brick Road executive chairman Mark Bouris said he can’t see banks being sympathetic to borrowers facing mortgage stress.

“To be fixed rate borrower, you probably borrowed in the last two or three years, which means your fixed rate is coming off this year or next year,” Mr Bouris said.

“You’re going to revert to a standard variable rate. The banks know whether [or] not you can refinance and if you can’t, they’re more than likely to apply to you the standard variable rate, not the discounted rate.”

Short-term fixed loan rates averaged as low as 1.95 per cent in May 2021 for owner-occupiers. Today’s standard variable rates are around 6 per cent. A borrower on a $1 million mortgage will see their monthly repayments rise from $3,700 to $6,000.

“I don’t think the banks will price gouge intentionally, but they won’t be sympathetic,” Mr Bouris said.

“In other words, for those people who they know can’t go anywhere, they’re more than likely going to hit them straight up with the standard rate.”

Fixed-rate loans peaked slightly above 35 per cent of all housing credit in early 2022, compared with a pre-pandemic average of closer to 20 per cent, according to the Reserve Bank.

“While fixed-rate loans have been rolling off since then, and borrowers have generally switched onto variable-rate loans, this adjustment still has some way to play out,” RBA assistant governor Chris Kent said.

“The unusually high share of fixed-rate loans when the Bank started to tighten monetary policy has added an extra delay to the pass-through to outstanding mortgage rates.”

Since last May, the average outstanding mortgage rate across all loans has increased by around 110 bps less than the cash rate.

“More than half of this difference owes to the effect of fixed-rate mortgages that haven’t yet rolled onto higher interest rates,” Mr Kent said.

“Also, the average outstanding rate for variable-rate mortgages has risen by around 40 bps less than the cash rate as a result of competition among lenders for good-quality borrowers.”

[Related: RBA rate-hike cycle 'a bit crazy': Shane Oliver]