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Cash rate cut will improve housing affordability – if banks get on board

The Reserve Bank’s decision to cut the official interest rate to a historical low of 0.10 per cent will improve housing affordability, as long as the banks decided to pass the cut onto their customer.

Real Estate Institute of Australia President Adrian Kelly points out that housing affordability would improve by 1.7 per cent, if the entire 0.15 percentage point drop was passed along to mortgage rates.

“For the June quarter of 2020, REIA’s Housing Affordability Report showed that housing affordability had already improved with the proportion of income required to meet loan repayments decreasing to 34.5 per cent, a decrease of 0.2 percentage points over the quarter,” Mr Kelly said.

“Today’s interest rate cut, if passed on, would see the proportion of income required to meet loan repayments decreasing to 33.9 per cent.

“The personal income tax cuts announced in Budget in October will further improve affordability for many home buyers.

“Yesterday’s housing finance data showed that September recorded the fourth consecutive monthly increase and the highest level since October 2009 on the back of improving consumer sentiment about purchasing a home, particularly amongst first home buyers.

“Today’s interest rate cut will add to buyer interest,” Mr Kelly said

Tim Lawless, Head of research at CoreLogic agreed with this sentiment, noting today’s cut takes the cash rate target to an unprecedented low.

“If passed on by the banks, which is highly likely, we will see mortgage rates fall further from their already record lows,” Mr Lawless said.

“Historically cuts to interest rates have fuelled housing market activity and generally aligned with upwards pressure on dwelling prices.

“With the trend in housing values already rising around most areas of the country, there is a good chance lower rates could see momentum building across the nation’s most valuable asset class.”

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