Interest Rate Cuts - What does it mean?

10 Mar 2019

For those who have managed to avoid all aspects of civilisation this week, the RBA has cut interest rates to a record low of 0.75 percent. While the big banks have claimed that at least part of the cut will be passed onto borrowers, that amount still varies rather significantly depending on who you’re with. The cut is also being seen as a potential solution for a wide-range of issues including a weak job market, stagnant wage growth, and low household spending. Although this news in terms of mortgage holders and property prices, certainly needs to be put under its own microscope…  

As mentioned, recent history has taught us only a partial cut will be handed down to mortgage holders. Following an 0.25 percent cut from the RBA, most experts have predicted a 0.15 to 0.20 percent cut from the big banks. However, while most borrowers are happy to see their rate finally dip below the 4 per cent mark, some of the lowest rates in the market are predicted to plummet to around 2.74-2.84 percent! The consensus is simple: don’t let the good news of falling rates turn into carelessness on your part. Continue to look around thoroughly for the best deal and never assume you’ve found the best one.

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Property prices in response to recent cuts have also provided us with a reserved optimism judging by activity in other capital cities. Two years of freefall in Sydney and Melbourne, coming to a drop of 15 and 11 percent respectively, has seen an uptick of around 3.5 per cent in the last quarter in response to three cuts in the last five months. This may not be an immediate return to the good times, but it’s encouraging to see these cuts eliciting the responses in the market that many hoped for. While Perth has fallen 0.8 per cent by comparison, these record lows in both prices and rates have renewed the sense of urgency among buyers, who are keen take advantage of affordability as they anticipate a return to record highs.

Of course, there’s no point analysing the market and economy without first considering the people themselves. Rising underemployment has contributed to stagnant wage growth, while consumer confidence remains cautious. There’s certainly a few more things that need to fall into place before our industry returns to its glory days, but as we’ve seen, these cuts certainly aren’t doing nothing!
 

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