Home-loan Rates Tumble But Borrowers Must Wait

Home-mortgage rates are heading to their equal lowest level for 22 years after virtually all banks announced yesterday that their standard variable rates would drop to 8.75 per cent.

But many Australians, including most Victorians with mortgages, will have to wait until next year to benefit. The banks decided to impose a waiting period of six to eight weeks for existing home loans.

And the Reserve Bank warned that it was worried by the pace of wage rises through enterprise bargaining. It said overall wage restraint had been achieved "only because other employees have received relatively small rises, a situation that may not be sustainable".

The Reserve cut official rates from 7 per cent to 6.5 per cent yesterday morning, dashing business hopes for a bigger cut after steep falls in inflation and wage growth. By evening, virtually all banks had announced that the rates would be passed on to home loans.

At 8.75 per cent, the banks' new rate will match their 1993-94 levels; the last time rates were lower was in June 1974. The Treasurer, Mr Peter Costello, said the cuts since June would lower the cost of an average new $100,000 home loan by $140 a month, $35 of it from the latest cut.

Most banks will offer the lower rate to new home-buyers from next Monday. But the Commonwealth Bank and the National Australia Bank, the two biggest home lenders, will not pass it on to existing mortgages until 30 December.

St George Bank will hold off even longer, until 1 January. The ANZ Bank will introduce its new rate on 16 December and Westpac on 17 December. The banks say they need time to roll over their term deposits at lower rates, and thus protect their profit margins.

Of the main non-bank lenders AMP (7.98) and Aussie Home Loans (7.99) had already cut their rate; RAMS goes to 7.99 from 15 December; the RACV moves to 7.95 from 3 December.

The governor of the Reserve Bank, Mr Ian Macfarlane, said the cut was brought about by "the improvement in the outlook for inflation, which has increased the scope for the economy to sustain a faster rate of growth".

But he hinted that the bank might raise rates unless there was slower growth in executive pay rises and enterprise bargains. "In the private sector, these are running at more than 5 per cent and . . . have shown no evidence of slowing," he said. "Failure to (reduce wage growth) would inevitably result in slower employment growth than would otherwise be possible."

The Prime Minister, Mr John Howard, said ordinary wage and salary earners had "exercised a lot of wage restraint" and were now "reaping the rich reward" in lower mortgage rates and lower inflation.

Financial markets had already built an expected half a percentage point rate cut into the prices of bonds, short-term bills and shares, and yesterday took the Reserve Bank's confirmation of the rate cut in their stride.

Commonwealth bond yields and bill yields eased only slightly, the All Ordinaries sharemarket index slipped by a negigible one point to 2360.6 points, and the Australian dollar defied conventional wisdom by rising despite the rate cut, closing at 79.08 US cents compared with 78.71 previously.

The Australian Chamber of Commerce and Industry welcomed the cut, but said it was overdue. The Australian Chamber of Manufactures' Mr Allan Handberg said 1 per cent would have been better.

PAGE 14: Editorial.

THE NEW RATE:
what you pay
Amount        Term          Repayments           Savings
($000)          (yrs)         at 8.75pc                 (monthly)  ($)
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  75                 15             749.59                       $22
  75                 20             662.79                       $24
  75                 25             616.61                       $26
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 100                15             999.45                       $30
 100                20             883.72                       $32
 100                25             822.15                       $34
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 150                15            1499.18                      $45
 150                20            1325.57                      $48
 150                25            1233.22                      $51
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Monthly principal & interest loan repayments