CASH RATE CUT GREAT NEWS FOR BUYERS AND SELLERS

Published : 4 May 2016

For anyone even vaguely interested in property prices, mortgage rates, investments and superannuation, it's been a huge week! Not only did treasurer Scott Morrison deliver his first budget, but the Reserve Bank of Australia met and made the announcement everyone's been waiting for.

The experts have been saying for months that we should expect another interest rate cut - and the RBA delivered, lowering the cash rate by 25 basis points to 1.75 per cent.

In making the announcement, Glenn Stevens - Governor: Monetary Policy Decision, said the Board had taken careful note of developments in the housing market, "where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate. At present, the potential risks of lower interest rates in this area are less than they were a year ago".

 

Lower interest rates support demand

Mr Stevens said the Board believed that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.

"The available information suggests that the economy is continuing to rebalance following the mining investment boom. GDP growth picked up over 2015, particularly in the second half of the year, and the labour market improved. Indications are that growth is continuing in 2016, though probably at a more moderate pace," he said.

"Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.

"Monetary policy has been accommodative for quite some time. Low interest rates have been supporting demand and the lower exchange rate overall has helped the traded sector. Credit growth to households continues at a moderate pace, while that to businesses has picked up over the past year or so. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this."

 

Most banks passing it on

The cash rate cut is the first in the last 12 months. The announcement is excellent news for mortgage holders and those about to buy their first property - especially as Westpac, the Commonwealth Bank and NAB have all passed on the full RBA rate cut to home loan customers.

ANZ is only passing on 19 basis points to customers, blaming a 24 per cent slump in its first half cash earnings.

It's also good news if you are currently selling a property or business, as the cut will bring your asking price within reach of more potential buyers.

But while the cash rate cut is good news for some, it will not be welcomed by those still saving for a home deposit, or by self-funded retirees, the latter often relying on the interest from term deposits to live. National Seniors Australia described the cut as a "low blow".

Many pensioners and self-funded retirees hold term deposits because of the security and peace of mind they represent,” National Seniors chief executive Michael O’Neill said.

 

Mixed bag for investors

“These same people are also facing the double whammy of cuts to their pension or part pension when eligibility rules change from January next year. In the lead-up to this year’s election, older people need reassurance, not more uncertainty, on how they can make ends meet."

So it's a mixed bag for Australians this week, with some celebrating and some considering different forms of investment. But let's finish on a positive with a helpful tip.

Even though you could now benefit from lower monthly mortgage repayments, if you can afford to leave them at the pre-cut amount, do so. It all goes towards paying off that home loan quicker.