Homeowners are facing mortgage relief and the prospect of more to come after the country’s big four banks agreed to pass on some or all of an interest rate cut to customers.
In good news for borrowers but not for retirees relying on savings, the Reserve Bank yesterday cut the official cash rate by 25 basis points to an all-time low of 1.75 per cent.
In the same week banks have reported multibillion-dollar profits, albeit well off past highs, Commonwealth Bank and National Australia Bank confirmed they would pass on the full cut. Westpac will cut its home loans for owner-occupiers by the same amount, while ANZ will pass on just 0.19 percentage points.
The Bank of Queensland also agreed to pass on the full cut but WA’s Bankwest did not, saying it would “assess all aspects of the RBA decision before making any changes”.
For a homeowner with a standard variable home loan of $350,000 with CBA, Australia’s biggest lender, a 0.25 percentage point cut would translate to paying $55 less a month.
The trigger for the RBA’s decision was lower-than-expected inflation figures. RBA governor Glenn Stevens’ statement noted abating price pressures on the housing market and subdued growth in labour costs.
He also noted the Australian economy “is continuing to rebalance following the mining investment boom”.
“Taking all these considerations into account, the board judged 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,” he said.
Recent inflation figures put annual inflation as low as 1.3 per cent, well outside the RBA’s 2- 3 per cent target range. AMP capital chief economist Shane Oliver said he expected another cut in August to take the cash rate to 1.5 per cent.
“Rate cuts are like cockroaches, if you see one there’s likely to be another around the corner,” he said.
“It was justified by the low inflation numbers that we saw. The risk when inflation falls like that is the longer the Reserve Bank leaves it, the lower inflation becomes entrenched.”
CommSec chief economist Craig James said the RBA’s cut — its first in a year — would boost confidence for would-be homebuyers and business owners looking to borrow money.
“It’s very positive, it shows that we have got a Reserve Bank that isn’t super cautious, it’s willing to take a more positive and upbeat view of the world,” he said. “It looks like lower interest rates are here to stay for quite some time.”
The RBA’s decision came too late to influence Nicole Bosenbacker, who yesterday paid $498,000 for a house-and-land package in Terranovis’ Whistling Grove estate Wandi.
Her lender Bankwest has not cut its rates.
Ms Bosenbacker said she believed she had timed the market well, in part thanks to industry knowledge gleaned through her role as a consultant with building group Momu. She said historically low rates had “absolutely” been a factor.
“This is the time to buy,” she said.
Terranovis director Warren Spencer said conditions making it cheaper for some first-homebuyers to buy than rent had translated into higher sales. He said the cuts could be seen as an “added incentive”.