Variable mortgage rates in Australia have hit a new low following the historic decision by the Reserve Bank of Australia to cut the cash rate to 1 per cent.
Late this afternoon, RateCity.com.au confirmed Reduce Home Loans was among the small lenders embracing the latest cut, slashing its lowest rate by 0.20 per cent to 2.89 per cent.
Meanwhile, ANZ was the first big bank to pass on the reductions in their entirety while several other smaller lenders cut their variable rate by the full 0.25 per cent.
CBA, NAB and Westpac followed suit in part, confirming they would pass on at least some of the savings.
Passing on the rate cut in full translates into savings of $58 a month, that’s $692 a year for the average mortgage holder.
MIXED REACTIONS
The news of the second cut by the Reserve Bank of Australia in as many months has come with mixed reactions, including speculation on whether this cut will have an impact, or whether there will be more to come.
Ray White’s Chairman, Brian White responded positively to the news.
“Today’s rate cut to one per cent by the RBA will provide a further shot in the arm to the property market and will instil even more confidence following the Coalition’s victory in May’s Federal Election,” Mr White said.
REIQ CEO Antonia Mercorella said the rate cut, following last month’s 0.25 percentage points cut, is a tepid signal to the markets and will deliver little real impact.
“This rate cut of 0.25 per cent will do little to further stimulate housing activity that last month’s 0.25 per cent cut didn’t achieve.
“The Queensland housing market is sluggish with sales volumes easing, although our house prices are proving resilient.
“Agents are sharing with us that borrowers are struggling to access credit. Enquiry levels are strong but contracts are falling over due to lack of finance,” Ms Mercorella said.
The REIA maintains the rate cut will help affordability for first home buyers and, unlike the last series of cuts in 2015 and 2016 which stimulated the market, this cut will stabilise the market overall.
“The second cut in as many months is a major boost to housing affordability,” REIA President Adrian Kelly said.
“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.”
Metricon NSW general manager, Luke Fryer, says we should spare a thought for savers trying to build a deposit.
“The whole point of the interest rate cuts is to stimulate the housing economy, but decisions by banks to pass on official interest rate cuts to both borrowers and savers actually makes it harder for some, particularly those on the savings journey toward first home ownership,” Mr Fryer said.
“In today’s market, the single biggest issue preventing people buying and building property in Sydney isn’t affordability, it’s the deposit gap.”
IS THERE MORE TO COME?
Trent Wiltshire from Domain believes so.
“In recent speeches the RBA leadership has made it clear they are now aiming for an unemployment of 4 to 4.5 per cent, so lower interest rates will be needed to get there.
“The RBA is likely to cut two more times this year, beginning in July.”
THE BANKS PASS IT ON
Despite speculation to the contrary, the big banks have all indicated they will pass on at least some of the rates cut.
NAB will pass on a 0.19 per cent cut for variable mortgage holders, CBA will pass on the cut in full for interest-only mortgages, and 0.19 per cent for owner occupied principal and interest loans, while Westpac will offer reductions of 0.20 per cent for owner occupiers with variable loans, and 0.30 per cent for investors with interest only loans.
It was news that was welcomed by RateCity.com.au research director Sally Tindall who had previously noted said a lot of banks would think twice.
“The RBA and the Treasurer have made it abundantly clear they want these cuts passed on to mortgage holders, but banks are getting jammed between the competing interests of borrowers, depositors and profit margins,” she said.
As of late this afternoon, small lenders, including Athena, Resimac, Homestar Finance and State Custodians had passed on the rate cut in full, along with the ANZ, and Ms Tindall noted it was positive to see several lenders pass this second rate cut in its entirety.
“ANZ has tried to rectify last month’s disastrous decision to hold back part of the cash rate cut,” Ms Tindall said.
“As a result, its variable rate customers will receive a 0.43 per cent cut to their rates – that’s not to be sneezed at.
“For the average ANZ customer, this translates to a savings of $101 a month or $1215 a year when both rate cuts are passed on.
“Today we’ve seen Australia’s first variable rate starting with a 2 and expect to see more.”
