RBA Interest rates cut to a record low

There’s been big news this week; with the announcement that the Reserve Bank of Australia (RBA) has cut interest rates. This is the first time since August 2013 that interest rates have been slashed, where the Official Cash Rate has been lowered by 25 basis points from 2.5 per cent to 2.25 per cent – a new record low.

This cut in interest rates is good news for both businesses and households and set to lift confidence levels of consumers and businesses and to stimulate household spending. However it comes as bad news for the exchange dollar, with the dollar weakening and falling three cents in just a few days, making the currency a less attractive investment option.

It also comes as bad news for savers, especially retirees who rely on their savings. With the return on savings decreasing with the cut, this will leave savers earning less interest on their savings.

So, what does this cut mean for the property market?

Mortgage holders will be pleased with the announcement, especially those on a variable interest rate allowing them to save anything from $50 a month on a $300,000 loan to $120 a month on an $800,000 loan. A variable rate could drop as low as 4.85 per cent, which is the lowest cost of mortgage debt since July 1968.

According to Tim Lawless, CoreLogic RP Data’s head of research, “Lower mortgage rates have the potential to add some fuel to what are already strong housing market conditions.”

However, he adds, “Lower consumer confidence, stricter serviceability requirements for borrowers, tighter lending conditions for investors, affordability challenges and low rental yields are all factors that may contribute to the moderation in housing market conditions over 2015.”
Published on 6th of February 2015 by Marty Stanowich
Marty Stanowich
Marty Stanowich

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