Mozo Money Moves: Aussies risk falling into a ‘debt trap’ and one lender hikes all owner occupier fixed rate terms.

Welcome back to Mozo Money Moves, your weekly banking wrap where we look at what’s been happening to interest rates, fees and conditions to key personal finance products.

This week, Mozo revealed the best of the best in Online Share Trading platforms, released the Mozo Banking Roundup for March 2024, and one lender bucked the fixed rate cutting trend by hiking all fixed rates terms for owner occupiers.

Mozo’s personal finance expert Rachel Wastell also shared new Mozo research with The Sydney Morning Herald about the risk of falling into a "debt trap", and spoke with Mozo alumni Tom Watson about the recent Reserve Bank of Australia (RBA) cash rate decision.

Let’s get into it!

RBA Moves

On Wednesday, Money Magazine’s Friends with Money podcast aired a discussion between Wastell and Watson, which took place just after the RBA held the cash rate at 4.35% in March.

The two discussed the RBA's stance on interest rates, predictions for home loan and savings rates, and advice for Australian savers and mortgage holders.

"If the RBA does decide to cut the cash rate, mortgage rates will start to come down and we think that banks will pass on that first cut in full pretty quickly to avoid being called out by the media," said Wastell.

“After that initial rate cut, however, it could go either way. Lenders may want to keep some of those rate cuts to boost net interest margins and improve profitability.”

“Looking at savings,  it’s important to note that there isn’t a perfect correlation between the RBA cash rate moves and changes to deposit rates, as banks will typically entice customers to hold their cash with them depending on the funding required to support their loan books.”

Home Loan Moves

In the home loans space, while the average variable rate has remained steady at 6.83% p.a., the average fixed rate on the Mozo database has slowly declined, now sitting at 6.28% p.a. for 3-year fixed terms**.

Mozo’s Banking Roundup (which you can sign up to receive here) showed that in March most of the changes were cuts to fixed rates (particularly three year terms) at the beginning of the month, and variable moves were mostly slight shifts from smaller lenders.

Today, ME Bank joined this wave of fixed rate cuts, cutting its fixed home loan rate for 2 to 5 year terms by 20 to 60 basis points for Owner Occupiers paying principal and interest, but increased 1 year fixed rates by 5 basis points for its 80-90% LVR tier.

Notably, the Bank Of Queensland bucked the fixed rate cut trend by hiking owner occupier fixed rates by 10 basis points across various terms. It is the only bank since February to increase fixed rate home loan rates on all their terms for owner occupiers. 

In March, IMB bank reintroduced a cashback incentive that they withdrew in December, and today have added this to their budget home loan product. IMB is now offering refinancers $2,000 cashback when they switch to IMB’s variable rate budget home loan with a loan amount of $500,000 or more with a maximum LVR of 80%, settled within 90 days of application.

While home loan cashback offers can be a good incentive, Wastell warns against using this as the deciding factor when taking out a mortgage.

"It's easy to be swayed by cashback offers, but the most important factor to consider is how much interest you will be paying over the loan term - and how long that loan term is.”

“Rather than basing your decision on an exciting cashback offer for a few thousand dollars, the key is to look at the overall cost."

LOWEST HOME LOAN RATES

Mozo Home Loan Insights:

• As home deposit sizes swell, Jack Dona shares just how much deposit you need to buy a home in Australia’s capital cities in 2024.
• A lesser known hack that could save you thousands is updating how often you repay your home loan, Jasmine Gearie has the latest.
• Compared to the average Big Four Bank variable rate, at 7.48% p.a., borrowers with a $500,000 home loan could be $436 worse off. 

Credit Card Moves

This week, after Mozo reported sneaky Big Four Bank credit card hikes going under the radar, the Commonwealth Bank introduced a new 0%p.a. interest-free period for three months on their low rate credit card. This card rate however will revert to a 13.99%p.a. Rate after the initial interest-free period ends, which is more than 5% higher than the current lowest rate card on the Mozo database.

Despite credit card rates rising, it seems Aussies are increasingly resorting to credit card usage to manage their buy now, pay later (BNPL) debts as the cost of living continues to rise.

Mozo research^ revealed 49% of BNPL users hold multiple BNPL accounts, with 69% resorting to credit cards to cover their repayments. 

The findings showed that BNPL users without credit cards had lower average debts ($725) than those without credit cards ($1,059) highlighting the riskiness of the practice of paying off interest-free debt with a credit card.

As half the credit cards on the Mozo database have a rate of 19%p.a. or higher, there’s a risk to BNPL users who can’t clear their credit card balance each month of falling into a “debt trap.”

“If you have multiple debts, using one to pay off the other can be dangerous, especially if you end up taking on more debt by applying for pay advances just to cover what you owe,” Wastell says.

“If you are having to resort to a credit card, make sure you have the lowest rate possible, or if you have a large outstanding balance, you may want to consider a 0% balance transfer card to give yourself some time to pay off that debt at a much lower rate.”

TOP CREDIT CARD OFFERS

Mozo Credit Card Insights:

• Lenders have been shifting credit card rates up, but these moves have so far been “flying under the radar” - here are the banks moving rates up.
• The Mozo database compares over 200 cards from 60 providers, so our team has crunched the numbers to find the best credit cards in April 2024.
• Not sure how much you could save by switching to a Balance Transfer credit card? Mozo’s Credit Card Switch & Save calculator can help.

Savings Moves

In March, savings rates and term deposit rates saw some cuts, as the market consensus is the next rate move will be down, but there are still a number of savings account products offering attractive rates.

"A key tip for people who are looking for a high interest savings account is that if you're not good at meeting the bonus conditions each month there are some really high base rates around,” Wastell explains.

"Australian Unity is one bank obviously trying to get some attention right now because they've got a 5.20%p.a. base rate. That's not that far off from the highest bonus rate in the Mozo database which is 5.55% p.a."

HIGHEST BASE (NO STRINGS) SAVINGS RATES

HIGHEST ONGOING BONUS SAVINGS RATES

Mozo Savings Insights:

• The year is already flying by, but have you managed to stick to your savings plan? If not, Cameron Thomson has 4 simple tips to get you back on track.
• If you’re on the hunt for a high interest savings account, a key thing to know is just how much you need to deposit to get the best savings rate.
• Mozo’s team of money experts have compared hundreds of savings, term deposits and everyday bank accounts to find the best in Australia.

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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 Round Up here.

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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. 

^Mozo.com.au commissioned a nationally representative consumer research survey via Researchify, surveying 2,554 Australians, aged 18 years and over, from 12th January to 2nd February 2024. The sample of BNPL users was nationally representative, comprising 1,296 BNPL users.

** Based on a $400,000 Owner Occupier Home Loan paying principal and interest with an 80% LVR accurate as at 5 April 2024.