While industry stakeholders remain at odds over whether or not the Reserve Bank of Australia will drop the cash rate when the Board meets next week, it is becoming increasingly unlikely that Australia's banks will pass on any rate cut in full.
Speaking to Real Estate Business' sister title The Adviser, AFG's NSW/ACT state manager Chris Slater said the banks have gone to great lengths to forewarn borrowers and brokers that any rate cuts delivered by the RBA may be withheld.
AFG, a mortgage broker aggregator, estimates it processes 10 per cent of Australian mortgages.
At the end of last year, ANZ's chief executive Australia Phil Chronican said the bank's funding costs were now "largely unrelated" to movements in the Reserve Bank's official cash rate.
As such, the lender decided to align its mortgage rates more closely with its funding costs and review its rates on the second Friday of each month – independently of the RBA.
Less than one week later, Westpac's chief executive Gail Kelly told press that the lender had decided to follow ANZ's suit and review its mortgage rates independently of the Reserve Bank.
"We are probably going to see the RBA drop the rates. But, the big question will be whether or not the banks pass on the rate cut in full and I don't think they will," Chris Slater said
"We would love them too. First home buyers would really benefit from another 25 basis point rate cut, but I do not think we will see the rate cut passed on in full."
RP Data's senior research analyst Cameron Kusher agreed and said if the banks withhold some or all of the rate cut, it would really hurt the level of housing activity.
"Given the weak housing numbers we saw this month, I think there is a good chance we will see another rate cut in February. But, will it be passed on? I don't necessarily think that will be the case, which will ultimately limit the amount of people coming back into the housing market," he told The Adviser.