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RBA Wrap Up: Did Your Bank Make The Cut?

interest cuts, reserve bank, property investment, property investor, investor, investment, real estate, first home buyer, pro-property government

In a historic move, the Reserve Bank has cut the cash rate by 25 basis points to a record low of 1.25%. This marks the first move in the official interest rate since August 2016, when the RBA dropped the cash rate from 1.75% to 1.5% and its change is expected to reverberate through the property market and broader economy.

The Real Estate Institute of Australia and its president Adrian Kelly welcomed the decision, claiming it will assist in bringing affordability and stabilisation into the property market.

“Subject to the banks passing on the full cut, this means that for each $100,000 borrowed, annual payments decrease by $250. For a first home buyer, who in the March quarter of 2019 had an average loan size of $338,000, this means a saving of $70 per month,” Mr Kelly said.

Many of the nation’s top lenders have responded to the RBA’s move to lower the official cash rate.

WHO MADE THE CUT?

ANZ
Variable interest home loan rates cut by 18 basis points across investment loans, as well as home loans. Effective 14 June.
CBA
Standard variable rate home loans will see the full cut of 25 basis points. Effective 25 June.
NAB
Variable rate home loans will see the full cut of 25 basis points. Effective 14 June.
WESTPAC
Variable investor loans on interest-only payments will see a cut of 35 basis points. Variable investment property loans on principal and interest repayments will see a cut of 20 basis points. And finally, variable home loans for owner-occupiers on both interest-only and principal and interest repayments will see a cut of 20 basis points. Westpac also introduced a new first home buyer special loan for owner-occupier on principal and interest on a fixed rate of 3.49% per annum for five years. Effective 18 June.

For a comprehensive live list of which lenders have passed on the rate cut, head to ratecity.com.au

Mortgage Choice CEO Susan Mitchell said that the focus must now be placed on when lenders will pass on the rate cut to borrowers.

“Financial markets are speculating that a second rate cut is on the cards in 2019, and some economists predict as many as three rate cuts by Christmas. Regardless of what the RBA has in store, I urge anyone looking to secure a home loan to speak to their local mortgage broker to ensure they are getting a good deal.

“Interest rates are already hovering at historic lows, and if lenders respond to the RBA’s move by slashing their interest rates, there is an even more compelling case for those with property buying plans to take action.”

Graham Cooke, insights manager at home loan comparison site Finder.com.au, said if your bank doesn’t cut, then you should look elsewhere.

“A lower cash rate will spur even further competition within the market so it is the perfect time to weigh up your options as you have the bargaining power.

Since the RBA’s announcement, Finder, Australia’s most visited comparison site reported a surge in interest for low-rate homes loans by 654%. Interest in variable rates grew by 564%, while there was a 369% spike in those looking to refinance. The uptick demonstrates how Australians are becoming increasingly savvy with their finances and are being proactive in looking for better value.

Lower interest rates are just one of a few changes that may contribute to property price falls ending this year. The Coalition’s victory in the federal election means there will be no changes to negative gearing and the capital gains tax discount, which were likely to push prices lower.

In addition, APRA’s plan to remove the requirement for banks to assess a borrower’s ability to repay a loan at a mortgage rate of at least 7 per cent will increase the maximum amount a person will be able to borrow. And the government’s first home loan deposit scheme should also provide a boost to the lower end of the market.

There are early signs that the property market is close to bottoming out: clearance rates are at their highest point in over a year, price falls have slowed, and more people are thinking about buying. The RBA stated that “[housing market] conditions remain soft, although in some markets the rate of price decline has slowed and auction clearance rates have increased”.

WHAT WE CURRENTLY KNOW:

  • Negative gearing and capital gains tax discount remain. Good news for investors.
  • Lower Interest Rates equal reduced annual mortgage repayments.
  • New Government scheme to allow first home buyers to buy with a 5% deposit.
  • APRA’s recommended reduction of loan serviceability criteria makes loans more accessible.
  • More buying opportunities as a result of lower interest rates.
  • Increased confidence in Sydney’s property market.

If you are thinking about buying a property and want to capitalise on current market conditions, you can find your future home or investment opportunity here.

Alternatively, please email our consultants or call 1800 842 071 for more information.