Early this month, the Reserve Bank of Australia made the decision to cut our interest rates for the second time in six months – with the new rate reaching a record-breaking low of 0.5%.
The decision has come in an effort to support our economy during an unprecedented time, when COVID-19 is predicted to delay our progress toward achieving employment and inflation targets.
Philip Lowe, the governor of the RBA, said that the bank’s board came to the decision that “it was appropriate to ease monetary policy further to provide additional support to employment and economic activity”.
According to the Australian Financial Review – the Big Four Banks have all made the decision to pass the rate cut on to their mortgage customers, recognising that the community expects them to act in a way which provides additional financial support to all.
So, all financial talk aside, what does the additional rate cut really mean for prospective home buyers or those with an existing mortgage?
Because the rate cut will decrease the cost of borrowing, barriers to entry in the property market are reduced and this will put upward pressure on the demand for housing. This, in turn, should continue to drive an increase in house prices which will assist the continued recovery of our property market.
If you’ve been considering getting into your first home, now could be a great time to do so. Lower interest rates coupled with a positive outlook for house price growth make for a great investment, with reduced repayments providing an opportunity to get ahead on your mortgage sooner.
Not to mention, if you are a First Home Buyer and you decide to build a home, you’re looking at significant savings when taking into account the First Home Owners Grant.
Those looking to sell sometime in the future may find some relief in the positive house price rise trend that is predicted to continue over the coming months.
As a consumer, the rate cut places you in a position of power to really negotiate the best deal you possibly can. If your chosen bank has not decided to pass the rate cut down in full, you should make them aware of your intentions to shop around for a better rate elsewhere. Don’t be afraid to say no to your bank and move on – think of the savings!
Finally, if you’ve already got a mortgage, the rate cut means significant savings on your monthly repayments.
According to RateCity.com.au, the average CBA customer will save approximately $691 per annum and the average Westpac customer $662 per annum. With savings of approximately $50-$60 per month, you may choose to put the extra money into your superannuation to prepare a nest-egg for the future or even continue paying your old repayment and take advantage of the opportunity to chip away at your loan faster.
Rate changes for the Big Four Banks are effective as of:
Westpac – March 17
ANZ – March 13
NAB – March 13
CBA – March 24
Now is truly an exciting time – it has never been easier to obtain finance for your dream home, grow your investment portfolio or reap the benefits of a reduced monthly mortgage repayment.