After hearing almost no news for nearly three years, the Australian Reserve Bank (RBA) is on the move cutting the official cash rate a new historic low last month the RBA has once again cut the cash rate in July to an even 1%.
That was in line with the majority consensus from Australian economists, including all four of the major banks. It’s also what RBA Governor Philip Lowe suggested when he spoke about the last cut.
“This is the lowest level in Australian history, and the Reserve Bank hopes it will be enough to reverse the trend in weakening consumption and rising unemployment.”
What are the banks doing?
ANZ has agreed already to pass on the entire rate cut after being criticised for only passing on 18 basis points of the previous months 25 basis point rate cut.
However, Commonwealth Bank, NAB, and Westpac are refusing to pass the entire cut to their home loan customers this time, unlike last month.
NAB and the Commonwealth bank will reduce the standard variable rate for owner occupiers and investors paying principal and interest on their mortgage by 19 basis points.
Westpac will reduce the same mortgage rates by 20 basis points but will cut the rate further for variable residential investors making interest-only repayments, handing them a larger 30 basis point cut.
Mike Baird, NAB’s chief customer officer, said the 19-basis point reduction could save a homeowner paying principal and interest on a $400,000 home loan an additional $552 a year.
“This is on top of the 25-basis point reduction last month, which means customers with an average $400,000 loan could save a total of $1296 a year,” Mr Baird said.
Domain economist Trent Wiltshire believes the RBA will cut rates again sometime in the last quarter of the year to an interest rate of 0.75%, which will help ease property woes.
“Interest rates cuts will be the key driver of prices bottoming out sooner rather than later,” he said.
Xynergy Realty believes lower interest rates will be unlikely to have a great effect due to households already being in significant debt, and people are wary about taking on any more. We still see bank lending remain pretty restricted so until that changes property growth will be minimal.
According to Sarah Hunter from BIS Oxford Economics, unemployment rate and wage growth are the two key drivers that the RBA needs to focus on if we want to see some changes in the Australian economy. Homeowners are a bit more wary with their spending due to falling house prices.
However, to change the real estate market as a whole, it requires a step by step process. With a significant decrease in interest rates and a chance that APRA will cool down lending regulations, Xynergy Realty believes that the Melbourne real estate market will have a positive shift in the near future.
Published by Xynergy Realty, 2019 – Oakleigh Real Estate Agency