The Reserve Bank last 4th of June finally dropped the cash rate by 25 basis points to a new record low of 1.25%. This is welcome news for Australians as wage growth remains flat for more workers and the cost of living has been rising.
Australia’s top economists and property experts were mostly expecting a cut and one of those who correctly predicted a cut was AMP Capital chief economist Shane Oliver. “Growth has slowed, inflation has slowed well below target, unemployment looks like it is now starting to rise when it needs to be falling to get inflation back up and the RBA has recognised all of this,” Mr Oliver said.
Treasurer Josh Frydenberg had warned the major banks to pass on the lower cash rates in full to homeowners. Among the major lenders who have passed the full 25 bps cut to its mortgage holders were CBA and NAB.
Both Westpac and ANZ however have been criticised for not passing on the full rate cut. ANZ announced a decrease in its variable home loan rates by 18bps across all its mortgage products, effective from 14 June. Westpac only passed on 20 basis points.
What the rate cut means to the property market
According to CoreLogic’s head of research, Tim Lawless, lower mortgage rates, along with lower serviceability assessments for borrowers, political stability and greater confidence following the federal election could turn the housing market around sooner than expected.
What the rate cut means to first home buyers
The rate cut could allow first home buyers to get into the market more quickly. With proposed changes in serviceability assessment, first home buyers’ borrowing capacity will increase. And lower interest rate means more affordable repayments. First home buyers who wish to get into the market should do so now while rates and terms are favourable.
What the rate cut means for homeowners
The rate cut will save owner-occupier customers making principal and interest repayments on a $500,000 home loan on a 30 year loan term about $71 per month or $852 per year. They can actually use these extra funds to pay off the home loan faster and get ahead in their repayments or provide a family with extra money for household expenses.
It’s also a good time for homeowners to have their home loans reviewed by their lender or mortgage broker. Banks are aggressively offering competitive rates and refinance cashbacks in a bid to win more customers.
What the rate cut means for retirees
Pensioners and retirees relying on interest from their savings are set to receive less as banks are reducing the base rate on their online savings account.
Even with the rate cut, borrowing is still difficult. Intense scrutiny on borrower’s income and expenses remains. Comprehensive credit reporting is providing lenders with greater transparency around borrower debt levels and credit standing.
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