Out-of-cycle variable rate changes now standard business practice

One of the most significant retail banking developments during 2014 was the willingness of mortgages lenders to make out-of-cycle changes to variable home loan rates.

For many years the convention was that, while fixed rates move up and down in line with movements in the money market, variable rates would only change when the Reserve Bank changed the cash rate.

The convention started to break down after the financial crisis, when banks had to deal with increased wholesale funding cost pressures.

The Reserve Bank has not changed the cash rate since August 2013 but last year it became a routine business practice for lenders to change their variable rates.

According to comparison site RateCity, during the September quarter 26 lenders cut variable mortgage rates on 74 products.

According to the comparison site Mozo, lenders that changed their variable rates in December included Resi Mortgage Corp, Aussie, Citibank, Suncorp, IMB, Teachers Mutual Bank, bankmecu and Rams.

Some of these changes take the form of short-term discounts, while others are available only to certain classes of borrowers (such as those borrowing large amounts or borrowing on low loan-to-valuation ratios).

bankmecu launched a loan called goGreen Home Loan, which offers a discount to borrowers whose homes have high energy efficiency ratings.

Citibank offers a 15 basis point discount to borrowers with LVR ratios of 80 per cent or less (in November it increased the variable rate for high LVR loans).

While there has been plenty of activity in the variable rate segment, the actual rate changes have not been all that significant. According to RateCity, the average variable rate change in the September quarter was just four basis points and the same in the December quarter.