How RBA interest rate cut will affect property market?

The Reserve Bank’s cut to official interest rates is set to offer a boost to the weak property market, as experts look towards the bottom of recent price falls.

But within an hour of the decision on Tuesday, ANZ declined to pass on the full rate cut to borrowers, instead reducing rates by only 18 basis points and acknowledging some customers would be “disappointed”.

Commonwealth Bank and NAB will pass on the 25 basis point cut to both owner-occupiers and investors.

The central bank cut the cash rate to a historically low 1.25 per cent, from 1.5 per cent previously – its first move since August, 2016.

Pressure has been mounting on the major banks to pass on Tuesday’s 25 basis-point cut in full to mortgage holders after lenders in recent years chose to cut their own interest rates by a smaller margin than some RBA moves.

The prospect of cheaper finance comes after the bank regulator raised the prospect of relaxing a key stress test, meaning borrowers would be tested for their ability to repay a loan at a lower hypothetical interest rate than in the past.

It also follows the pick-up in sentiment after the Coalition’s clear election win, which will leave housing tax policy unchanged.

In Tuesday’s decision, the central bank warned over the outlook for household spending, which was being affected by slow wages growth and house price falls.

In the statement accompanying the bank’s decision it also noted low inflation, which has been a key headache for the RBA for some time.

But it was cautiously optimistic about the prospects for the housing market.

How much a borrower can save?

A cut of 25 basis points to 4.66 per cent could mean savings of close to $700 a year, or $58 a month.

A borrower with a $500,000 mortgage could save $75 a month.

For someone with a $1 million mortgage, the savings would be $151 a month.

The effect on Property Market.

“While I do not see dwelling values rebounding to their 2017 peak any time soon, monetary policy stimulus could help put a floor under falling dwelling values.”

McGrath real estate founder John McGrath said rate cuts were a catalyst to take action.

“One or two rate cuts would provide further incentive for buyers to re-enter the market and give them confidence that the bottom has been reached.”

A one percentage point reduction in interest rates boosts housing prices by about 8 per cent in the following two years, recent RBA research found.


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Posted in Buy, Latest news on 5th June, 2019