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RBA Wrap Up: New Historic Low

The Reserve Bank of Australia has cut the cash rate by 25 basis points to a new historic low of 1%.

The RBA’s decision to lower the cash rate marks the second interest rate cut in two months as RBA governor Philip Lowe says the central bank’s focus is on the nation’s economy and rising unemployment.

While the Reserve Bank’s motive to move may have little to do with the housing market, the latest cut will help affordability for home buyers… providing the banks pass it on.

Real Estate Institute of Australia president Adrian Kelly describes the second cut as “a major boost to housing affordability”.

“Subject to the banks passing on the cuts in full, this means that for each $100k borrowed annual payments decrease by $500,” Kelly said.

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


Passed on the full 0.25% rate cut. Effective 12 July.
Passed on a 0.19% rate cut for principal and interest customers and a full 0.25% to interest only customers. Effective 23 July.
Passed on a 0.19% rate cut. Effective 12 July.
Passed on 0.20% for owner occupiers and 0.30% for investors with interest-only payments. Effective 16 July.

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

What does this mean for property owners?

Buyer sentiment has been given another boost, according to the Financial Review.

“Rising auction clearance rates, stabilising property prices and an increase in auction volumes are telltale signs for investors and owner-occupiers that key markets are beginning to recover after two years in the doldrums”, says reporter Duncan Hughes.

When combining last month’s rate cut with this new rate reduction, mortgage holders can expect to see a considerable amount of savings, especially if lenders pass on both cuts in their entirety.

Graham Cooke, insights manager at Finder explains, “On an average mortgage, if your bank passes on both rate cuts in full – that is a 50-basis-point reduction – you could be saving almost $42,000 over 30 years.”

However, Cameron Kusher, research analyst at property data provider CoreLogic, has warned those trying to acquire new loans might find the process increasingly more difficult.

“Despite these positives, the introduction of the Banking Code of Conduct and the expansion of Comprehensive Credit Reporting from the beginning of July will ensure that although taking out a mortgage may become a little easier, the scrutiny on loan applications will remain significantly greater than it has been in the past,” he said.

Mr Kusher added that a recovery in the property market is expected to be a drawn-out process, even with lowered interest rates.

“No doubt attention will now turn to mortgage rates and how much of the cash rate cut will be passed through to mortgages,” he said.

What does this mean for your savings account?

“Property investors who also depend on interest from their savings accounts are seeing unfavourable conditions with retirees, in particular, feeling the effects, Mr Cooke noted.

According to Finder data, Australians have $526 billion in savings accounts Australia-wide. The 50-basis-point reduction from the last two months would represent a loss of $2.6 billion in interest over a year, with a drop of 75 basis points representing $3.9 billion less.

“So far, many of the top high-interest savings accounts have reduced their rates and some have even dropped by more than the 25-basis-point cut from June, such as Suncorp Growth Saver and CommBank NetSaver,” Mr Cooke said.

“It’s a timely reminder to stay on top of your savings account and see if you could be getting a better deal – especially as high rates will be harder to find. You can compare current savings account rates here.

“But remember, don’t make a decision based on rate alone – always factor in the home loan’s features and whether these fit with your goals and lifestyle so you’re not stung down the track.”