The RBA’s decision to reduce the official cash rate has seen it fall below 1% for the first time in history. The reasons for the reduction are many but one motivation was the continued weakness in some sections of the property market. Despite two previous rate reductions this year, property stocks are still low and although improving, there is still a way to go to restore overall confidence in the real estate market. The RBA is hoping that this rate reduction will stimulate activity in the real estate market as this has a positive influence in overall consumer sentiment that fuels economic growth.
The question is, how much of the cut will be passed on to borrowers?
Head of Elders Home Loans – John Rolfe, comments,
We have already seen two majors only pass some of the reduction through to owner occupiers but interestingly they have passed it on in full to interest only investor loans, in fact NAB passed on more! This is due to the fact that APRA (who regulate the banks) have started to loosen a number of policies that were introduced to restrict activity in investment lending. Other changes APRA have recently implemented have also helped to improve borrowing capacity for people looking to buy property so there is a strong expectation that this will improve activity.
Whilst the news is not good for depositors, it is for people looking to buy a home. The onus is now on the lenders to pass on the reductions to current and prospective borrowers to help stimulate economic activity.
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