Interest Rate Cuts and the impact for borrowers

THE RBA interest rate announcement on July 2, has been well-received by industry experts and many banks have already announced borrowers will receive interest rate relief.

The RBA’s decision to cut interest rates will help affordability for home buyers, according to the Real Estate Institute of Australia (REIA).

“The second cut in as many months is a major boost to housing affordability,” REIA President Adrian Kelly, said.

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

“For a first home buyer, who in the March quarter of 2019 had an average loan size of $338k this means a saving of $140 per month.

“Unlike the last series of cuts in 2015 and 2016 which stimulated the housing market through increased investor activity this cut will stabilise the market.

“It is first home buyers that will benefit most with the number of first home buyers decreasing nationally to 8,010 in April with the average for the first four months of 2019 being 8,319, down by 1,100 per month compared to the last four months of 2018,” Mr Kelly concluded.

In response to the falling cash rate, a number of Australian banks and lenders have started reducing their home loan rates, with further movement expected. This rate cut, if applied in full, could potentially save the average Australian an incremental $600 in interest per year and you don’t necessarily need to change lenders in order to save.

On July 2, Westpac announced a range of mortgage rate decreases for variable home loan customers, including a reduction of .20% per annum for owner occupier customers and a reduction of .30% p.a. for investor customers with interest only repayments. On the same day, NAB announced it will reduce its variable home loan interest rates by 0.19% per annum. ANZ also announced it will decrease variable interest home loan rates by 0.25%pa.

Commonwealth Bank also responded to the cash rate decision by reducing interest rates for home owners. For example Owner Occupied Principal and Interest Standard Variable Rate home loan reduced by 0.19% per annum (p.a) to a new record low rate of 4.93% p.a. Trent Wiltshire, economist at Domain, said there may be more cuts yet to come.

“The official interest rate is now at a record low of 1 per cent, but the RBA is likely to cut rates even further this year.

“However, these cuts may not be enough to turn- around a slowing economy.

“Fiscal stimulus – in the form of tax cuts, cash handouts or spending on infrastructure• may be required to give the economy the boost it needs,” concluded Mr Wiltshire.