Australian homeowners hoping for relief on their mortgage repayments may need to manage their expectations. Despite growing speculation that the Reserve Bank of Australia (RBA) could announce a rate cut in the near future, financial experts warn that history suggests banks might not pass on the full benefit to customers.
While the idea of a rate cut might sound like good news for borrowers, mortgage analysts are urging caution. According to past patterns, the initial cut in a rate-reduction cycle is often passed on generously by lenders—but subsequent cuts? Not so much.
A Familiar Pattern
This trend is not new. It was seen most recently during the early stages of the COVID-19 pandemic in 2020, when the RBA took aggressive action by slashing the cash rate to a record-low 0.10 per cent.
Mortgage comparison website Mozo has looked into previous rate-cutting cycles and found that banks have a clear pattern: they’ll often pass on the first cut in full, but future cuts tend to be held back—often to protect profit margins.
What History Tells Us
Rachel Wastell, finance expert at Mozo, noted that past interest rate cycles reveal a troubling pattern for mortgage holders.
“Looking back historically at past cutting cycles, lenders are less likely to pass on subsequent cuts,” she said.
She pointed to the mid-2019 rate cuts as a key example. In June 2019, more than half of lenders passed on the full 25-basis-point rate cut announced by the RBA. But when the central bank followed up with another cut just one month later, only 15 per cent of lenders passed on that cut in full. By October 2019, when yet another rate cut occurred, that number had dropped to just 9 per cent.
A similar scenario unfolded in 2020, as the RBA rolled out emergency rate cuts to soften the economic blow of the pandemic. The first cut in March 2020 was widely adopted by lenders—with only 13 per cent of those tracked by Mozo not passing on the full reduction. But by the time of the final cut in November that year, banks were far less generous.
“Just under a quarter of lenders didn’t pass the November 2020 cut on in full, and 43 per cent didn’t pass it on at all,” Ms Wastell explained.
Why the Change in Behaviour?
It often comes down to bank profit margins. As interest rates fall, the profit banks make on loans tightens. In an effort to safeguard those margins, many lenders slow down or completely withhold rate cuts for home loan customers—especially later in a cutting cycle.
“We’ve seen that banks tend to be generous early on, often with the first cut, but then start holding back as the cycle continues,” Ms Wastell said.
What’s Happening Now?
So far in 2025, banks have been relatively cooperative. When the RBA implemented rate cuts in both February and May, most lenders passed on the full 25-basis-point reduction to borrowers. The only exception in February was Virgin Money, which initially held back but later restructured its variable home loan offerings by introducing new basic and offset options.
In May, however, all lenders tracked by Mozo passed on the rate cut in full, with no one following Virgin Money’s earlier strategy.
That’s good news for now—but if the RBA announces another cut, things could change.
What Should Homeowners Do?
Ms Wastell stressed that homeowners need to stay alert and avoid assuming their bank will “do the right thing.”
“If cuts continue, we may start to see a split in the pack,” she said. “Borrowers can’t afford to assume their bank will pass on the full cut. You’ve got to watch your lender like a hawk—especially if your interest rate still starts with a six.”
That’s right. If you’ve seen two official rate cuts this year and your mortgage rate still starts with a 6, it might be time to reconsider your lender.
“There’s no excuse for complacency,” Ms Wastell added. “It’s the perfect time to shop around for a better deal or contact your bank and ask them directly why you’re not seeing any savings.”
The Hidden Game with Savings Accounts
Interestingly, the same banks that drag their feet on reducing home loan rates are often very quick to cut savings account rates.
Mozo has observed that in both February and May, many banks trimmed their savings rates before passing on rate cuts to mortgage holders.
“That’s a tactic we’ve seen before,” Ms Wastell said. “Lenders move early on savings—where there’s usually less public scrutiny—and delay passing on cuts to home loan rates.”
For many Australians, that means they’re getting hit from both ends: lower returns on savings and delayed relief on mortgage repayments.
Why This Matters for Australian Households
With the cost of living still uncomfortably high across much of Australia, any potential mortgage relief is highly sought after. But as we’ve seen, relying on banks to act fairly isn't always a winning strategy.
For homeowners with variable-rate mortgages, every basis point counts. A 25-basis-point cut could mean hundreds of dollars saved annually—but only if the bank actually passes it on.
Mozo’s research reinforces a critical message: don’t be passive. Whether you're a borrower or a saver, the best way to protect your finances is to stay informed and act swiftly.
Practical Tips for Borrowers
- Monitor your home loan rate regularly: Check whether your lender is passing on rate cuts in full.
- Compare offers from other banks and lenders: The market is competitive, and there’s often a better deal out there.
- Talk to your bank: If you're not happy with your rate, call and negotiate. Many banks will offer a lower rate to retain customers.
- Consider refinancing: If your lender won’t budge, moving to a new provider could save you thousands in the long term.
Final Word
While the Reserve Bank may soon announce another interest rate cut, Australian homeowners shouldn’t assume they’ll automatically benefit. Banks have a long history of holding back on passing on savings after the first cut in a rate-cutting cycle.
The message from financial experts is clear: don’t rely on goodwill. Stay proactive, informed, and ready to make changes. Your financial wellbeing depends on it.
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Mitchell
Mitchell is a seasoned Ph.D. scholar with extensive expertise gained through years of rigorous research, publication, and teaching experience. He brings a wealth of knowledge and analytical skills to tackle complex academic challenges. His work is dedicated to delivering innovative solutions, advancing knowledge, and promoting academic excellence. Proficient in research methodology, data analysis, and scholarly writing, Mitchell has contributed to peer-reviewed journals and mentored students to achieve academic success.
