Home owners happy with the RBA cut, but may not breathe much life back into the market: Economists

Written by realestateview.com.au in National on June 5, 2019

For the first time in almost three years, the Reserve Bank of Australia pressed the accelerator on the economy and cut the cash rate by 0.25 percentage points to a historic low of 1.25 per cent.

ANZ shocked the market by passing on just 0.18 percentage points of the full cut, while Westpac cut its rates by 0.20 percentage points, and 0.35 for investor customers with interest-only loans.

The CBA, NAB, Athena, RACQ, Reduce Home Loans and Banana Coast Community Credit Union all announced they would pass it on in full.

In delaying the cut to June 25, CBA will bank an extra $50 million, while the ANZ will collect $13.4 million by delaying its move to June 14, according to financial comparison site Mozo.

The announcement follows two months of rate-cutting by around 50 lenders, with Greater Bank last week becoming the first lender to go below 3 per cent, cutting its one-year fixed loan to 2.99 per cent.

For the customers of banks that are passing on the full rate cut, it could mean thousands of dollars in savings annually.

The average home loan size in Australia is $384,700, while the average variable rate sits at 4.91 per cent.

If lenders pass the rate cut on in full, a mortgage holder with that average loan will save around $58 a month, or $21,000 over the life of the loan, RateCity’s Sally Tindall said.

“This rate cut will provide some much-needed relief to mortgage holders feeling the pinch,” she said.

Australia’s household-debt-to-disposable-income ratio remains at a record high at 189.6 per cent and continues to be a pressing concern for the RBA, Ms Tindall said.

“Importantly, for many families, it will also be a chance to get ahead on their loan.”

Graham Cooke, insights manager at Finder, said now was the time for borrowers to make sure they’re getting the best deal.

“Keep an eye on your lender’s website and digital channels to see how it’s responding to the rate cut and how this will affect your mortgage,” he said. 

“If you’re not satisfied, don’t settle – this environment makes it a great time to go home loan shopping.”

The market

The RBA’s decision may be met with fanfare from home owners, but economists are warning the property market isn’t about to change gears.

While the decision had been heralded as a game changer for the housing market, don’t expect double-digit price growth, said Angie Zigomanis, associate director with research firm BIS Oxford Economics.

“From our point of view it doesn’t put a rocket up the market, but it might put a floor under prices,” Mr Zigomanis said.

“If you look at Sydney and Melbourne, obviously there’s still a level of supply going through and there’s no pressure from a stock perspective. Because prices are still falling, investors are going to be wary.”

House prices continued to fall through May, with CoreLogic reporting that dwelling values across capital cities eased a further 0.4 per cent, down by 8.4 per cent over the past year.

In Sydney and Melbourne, the comparable annual figures were 10 and 9.9 per cent respectively.

Rate cuts historically have helped bolster house prices. This time around, however, commentators think it will have little effect on the property market.

“With credit policies remaining tight, the stimulus of lower rates isn’t likely to be as effective in kickstarting the housing market as what we have seen in the past,” CoreLogic’s head of research Tim Lawless said. 

In May, APRA moved to loosen the strict criteria, suggesting that aspiring borrowers should be assessed on 2.5 per cent above the borrowing rate, instead of 7 per cent.

House prices will be boosted by relaxing the credit lending requirement, the continuation of negative gearing and the pending implementation of the first-home buyers grant, Canstar’s finance expert Steve Mickenbecker said.

“On its own, a 0.25 per cent rate cut has no chance in changing house prices but, combined with other factors, there are good grounds to say the market will change.

“It will help house prices plateau a bit, and I think in six months we’ll see them start that gradual recovery.”

This article originally appeared in The New Daily.