Interest rates slashed again: what it means for you

The Reserve Bank of Australia's decision to introduce another interest rate cut will deliver homeowners an array of benefits extending well beyond monthly savings on their mortgage repayments, experts claim.

The RBA announced at its monthly board meeting Tuesday that the cash rate would drop another 25 basis points to a record low of 1 per cent.

This would save the average home loan customer about $600-$1000 a year on their repayments if banks passed the savings on in full.

And while households would no doubt welcome the reduced payments, real estate commentators said lower rates would offer homeowners additional support by propping up the housing market.

CoreLogic head of research Tim Lawless said the RBA's move to cut the cash rate last month has already helped boost housing demand and put a brake on price falls in Australia's major cities.

Property sales have been improving across city markets.
Property sales have been improving across city markets.

The median price of Sydney homes climbed 0.1 per cent over June, the first month of growth since prices began falling in July 2017.

In Melbourne, the median grew for the first time since November 2017 with a 0.2 per cent bounce in values.

The return to growth suggested real estate markets in both cities were on the verge of bottoming out, preventing a further erosion in household wealth tied up in the family home, Mr Lawless said.

Most banks, with a few exceptions, were quick to pass on last month’s cut.
Most banks, with a few exceptions, were quick to pass on last month’s cut.

"The 25 basis point cut in June along with the cut today … are likely to be further positives for the housing market and encourage an ongoing gradual levelling in the housing downturn nationally," he said.

Mr Lawless added that lower rates were occurring at the same time the country's bank regulator made moves to relax lending requirements for borrowers.

The market was also getting a boost from the federal election result, which ended speculation of negative gearing reforms.

Lower rates would likely boost housing demand. Picture: AAP/Lukas Coch
Lower rates would likely boost housing demand. Picture: AAP/Lukas Coch

These factors would help to put a floor under falling prices but would not drive another boom in prices as was the case when interest rates were cut in earlier years.

"The expectation is that a recovery in housing market conditions is likely to be slow and gradual despite lower interest rates," Mr Lawless said.

Finder.com.au insights manager Graham Cooke said banks were quick to respond to last month's rate cut announcement and would be under pressure to offer further improvements for buyers.

"So far, we've seen more than 700 variable rate products reduced in June alone, with more than 1000 rates reduced if you include fixed rate loans.

"Across all of the variable rates Finder compares, the average rate has dropped more than 20 basis points in June.

"The winners here are borrowers - they are spoiled for choice with the lowest home loan rates we've ever seen," Mr Cooke said.

AMP Capital economist Shane Oliver said the Reserve Bank would have made today's cut in a bid to lower unemployment, boost wages growth and push inflation back to target.

"The June (cut) was not enough for the RBA to achieves its objective," he said.

Mortgage Choice CEO Jacqueline Dearle said the case for a cut had been "strong".

"Should the rate cuts be passed on, this will lower mortgage rates to make housing more affordable, and subsequently give the property market a nudge in the right direction," she said.


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