Mozo Money Moves: UK cuts rates ahead of RBA decision as home loan sizes soar

This week was a bumper week. Not only did our team release the Mozo Banking Roundup for July, but two major global central banks, the Federal Reserve and the Bank of England held their monetary policy meetings, and two core data sets from the Australian Bureau of Statistics (ABS) were released; the June Quarter inflation data and the Lending Indicators for June.

On Thursday, Mozo also released its latest report Jet-Set for Less: Travel Credit Cards for Savvy Spenders in 2024, which found Aussie travellers could save hundreds of dollars by switching to a cheaper credit card.

Let’s get into it!

RBA Moves

The ABS’ June Quarter CPI release on Wednesday tracked largely in line with the RBA’s inflation forecasts. While the annual headline inflation rate rose slightly, 1.0% quarter on quarter taking it to 3.8% for the year, the annual trimmed mean dropped by 0.1% to 3.9%.

The biggest contributors to the June quarter's rise were Housing (+1.1%) and Food and non-alcoholic beverages (+1.2%). Housing costs shot up, driven by a 2.0% jump in rents and a 1.1% increase in new dwellings purchased by owner-occupiers. With the rental market staying tight and vacancy rates low, rents also surged by 2.0% this quarter, following a 2.1% rise in the March quarter.

Mozo’s personal finance expert Rachel Wastell says “while there has been some commentary around the slight uptick in the headline inflation rate, the drop in the annual trimmed mean figure that excludes volatile price movements suggests the Reserve Bank of Australia (RBA) will not hike the cash rate next Tuesday.”

“The RBA will probably discuss the possibility of a rate hike in their meeting next week, but with their recent reporting of an uptick in mortgage arrears in the July bulletin , they probably won’t want to cause mortgage holders any more pain than is absolutely necessary.”

This week, the Bank of England joined the European Central Bank in cutting its cash rate, reducing by 0.25% to 5.00% for the first time since March 2020. And, while Federal Reserve did not cut at their meeting this week, holding the US cash rate target between 5.25-5.50%, and the board stated it doesn't expect to cut until it has “greater confidence that inflation is moving sustainably toward 2 percent” these are positive signs that the global economy has reached a turning point in its battle with sticky inflation, and that the aggressive rate hiking cycles of key central banks have reached their peaks.

In Australia, variable-rate mortgages account for roughly 70% of all loans , while in other advanced economies fixed-rate loans dominate. IMF data reveals this is especially true in the US and the UK, with mortgage markets comprising 95% fixed and over 80% fixed rate loans, respectively.

“Aussie mortgage holders have actually been hit harder and faster by rate hikes than other advanced economies, despite the RBA cash rate sitting almost 1% lower than US and UK central bank counterparts,” says Wastell

“Given the more immediate impact on Australian households, the RBA has likely been more cautious about hiking the cash rate as high as the UK and US, and coupled with the recent arrears and data tracking in line with inflation, it still looks the next move from the RBA will be a cut, likely late this year or early next.”

Home Loan Moves

Lending Indicators released this morning also showed that not only have mortgage repayments grown in size due to the 13 rate hikes since May 2022, but the average loan size is at record high levels, as property prices continue to drive upwards.

According to the latest ABS release , in June 2024 average home loan sizes for Australian owner-occupiers increased by 1.7%, from $626,055 to $636,596 - the highest loan size since the series began, and almost $400,000 more than it was in June 2006, when it was $256,433.

“With property prices continuing their upward trajectory, Australian home buyers are taking on larger mortgages than ever before, placing even more financial pressure on households already grappling with high interest rates” says Wastell. 

“It's never been more crucial for borrowers who do meet serviceability requirements to shop around and see if they can get a lower rate. A small difference in rates on such large loan sizes can result in tens of thousands of dollars in interest saved over the life of a loan.”

Top 5 Variable Rate Home Loans

Key Banking Moves in July 2024

This week, we also released the July 2024 edition of the Mozo Banking Roundup. Each month Mozo research "rounds up" the key retail banking changes in the Australian personal finance market, to see what’s changed. You can subscribe to the roundup here, to get this delivered to your inbox at the beginning of each month.

Here’s the key changes that took place in the first month of the new financial year:

Home Loans

Variable Rates: Rate movements were mixed, with both increases and decreases including cuts from Bank First, Credit Union SA, NRMA, QBANK, and Ubank of  5 to 35 bps, and increases of 5-25 bps from Australian Unity, HSBC and Hume Bank.

Fixed Rates: Notable changes included NAB's 60 basis point cut of its 3-year fixed rates, and Beyond Bank’s 25-35 bps cuts for 2 and 3 year terms. Bank of Queensland, Heritage Bank, HSBC, Police Credit Union, and Queensland Country Bank implemented 10-20 bps increases.

Special Offers: Several cashback offers were adjusted. Bank of Queensland’s $2,000 offer is ending soon, Newcastle Permanent introduced new cashback offers, Qantas Money ended its 50,000 bonus points offer and St.George ended its $2,000 cashback offer.

July Rate Leaders

Fixed Rate Home Loans: Leading fixed rates range from 5.69% to 5.80% across various terms, offered by Queensland Country Bank, South West Slopes Bank, Up, and RACQ Bank.

Variable Rate Home Loans: Best rates for owner-occupiers and investors were seen from G&C Mutual and Easy Street, with rates starting at 5.80% (5.83% comparison rate*) and 6.04% (6.09% comparison rate*), respectively.

*WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

Credit Cards

Rate Increases and Fee Changes: Several providers, including Bank First, Coles, humm90, Kogan, Macquarie and St.George/Bank SA/Bank of Melbourne, increased interest rates and/or annual fees.

Bonus Points Offers: Citi, Commonwealth Bank, and NAB improved bonus points offers.

July Rate Leaders

Credit Cards: Top offers include introductory 0% balance transfer rates from St.George/Bank SA/Bank of Melbourne with a 1% transfer fee and the lowest purchase rate was from G&C Mutual.

Personal Loans

Rate Increases: Significant hikes to fixed rates of 100-250 bps were made by Alex Bank,Southern Cross Credit Union and Teachers Mutual Bank, while loans.com.au raised fixed rates by 20 bps and Credit Union SA cut 10 bps off its Tesla loan..

July Rate Leaders

Personal Loans: Harmoney was the rate leader for unsecured and secured fixed personal loans in July, starting from 5.76% (6.55% comparison rate*) and 5.66% (6.45% comparison rate*) respectively.

**WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 3 years as indicated, based on monthly principal and interest repayments.

Deposit Accounts

At Call Deposits: Adjustments were mixed in July, with a few introductory offers reduced, and some ongoing bonus rates increased. Bank of Queensland added an intro rate of 5.35% on top of its already competitive base rate of 4.85%, while Easy Street, Illawarra Credit Union, Southern Cross Credit Union raised rates between 10-25 bps. Bendigo Bank, Heritage Bank and St.George/Bank SA/Bank of Melbourne cut between 10-25 bps.

Term Deposits: A busy month with mixed movements, mainly affecting terms of 12 months or less, and more providers are now offering rates of 5% or above. Bank of Us, Goldfields Money, Great Southern Bank, and MyState Bank all cut rates between 10 - 45 bps, while Bank of Us, Commonwealth Bank, Macquarie, and NAB all increased their term deposit rates, with rises ranging from 10 bps to 50 bps. Great Southern Bank boosted some rates between 200-215 bps, and Bank of Sydney introduced new rates for 3 and 6 months.

July Rate Leaders

Savings Accounts: Leading savings rates include ME HomeME Savings account, Rabobank’s High interest savings account, and Australian Unity’s Freedom Saver, ranging from 5.20%p.a. to 5.75%p.a.

Term Deposits: Best term deposit rates are offered by Judo Bank, Heartland Bank, Rabobank and Alex Bank ranging from 5,00% to 5.30%p.a.

Mozo Travel Credit Card Report 2024

Mozo analysis of the latest Reserve Bank of Australia (RBA) payments data revealed that Aussies are spending more than they are at home, shelling out $62 more every time they tap their card. The average overseas credit purchase comes in at $174 (AUD) compared to just $112 in Australia. 

In light of this, Mozo compiled its latest report Jet-Set for Less: Travel Credit Cards for Savvy Spenders in 2024, to help Aussies save hundreds of dollars in potential fees and interest charges, by opting for a low rate credit card with no foreign exchange fees and low annual fees.

On average, the best low rate travel credit cards offered a low rate of just 11.84% p.a. on purchases, compared to the whopping 17.46% p.a. average rate across all 199 cards^. Looking at a $5,000 balance, a card holder with a 17.46%p.a. rate would pay $873 a year, while a card holder with a 11.84% p.a. rate would pay only $592. That’s a potential saving of $281 in annual interest for switching to a Mozo winner.

Mozo analysis also showed forex fees are, on average, 2.68%** which adds up to an extra $4.67 paid per transaction on the average overseas credit card purchase amount of $174 (AUD). For Aussies spending $5,000 on a card with the average forex fee, that’s a total of $134 in pesky fees that could be saved by switching to a card with no forex fees, like the winners of the Mozo Experts Choice Awards for Low Rate Travel Credit Cards.

“Forex fees may seem small, but they can add up quickly when you’re spending thousands on a family holiday,” says Wastell.

“Paying the foreign exchange margin might not seem like much at the time, but can turn into a nasty surprise for travellers who don’t check their statements until they return home.”

Mozo Low Rate Travel Credit Card Winners

• Bank First: Visa Platinum Credit Card 
• Bankwest: Breeze Platinum Mastercard  
• HSBC: Low Rate Credit Card 
• Westpac: Lite Card 

^Based on the analysis of 199 personal credit cards, comparing the average purchase rate across all cards with the average of the Mozo Experts Choice Awards 2024 Low Rate Travel Credit Card winners.

**Based on the analysis of 199 personal credit cards from 67 financial institutions, comparing the average forex fee across all cards with the average of Mozo Experts Choice Awards 2024 Low Rate Travel Credit Card winners.

---

As a part of Mozo’s commitment to making your money count for more, each month we “roundup” the rate changes, key banking trends and money moves in the Australian personal finance market. 

If you’d like to see the analysis in full once it’s released, you can subscribe to receive the Mozo Banking RoundUp here.

---

Disclaimer: Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice. Target Market Determinations can be found on the provider's website. While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.