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RBA cuts cash rate to 1.5%

RBA cuts cash rate to 1.5%

It was a close call as to which way it was going to go, but today the Reserve Bank of Australia (RBA) decided to drop the cash rate from a record low 1.75 per cent to a new record low = 1.50 per cent.

Governor Glenn Stevens said in his statement that recent data confirms that inflation remains quite low.

“Supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments.

“Growth in lending for housing purposes has slowed a little this year. All this suggests that the likelihood of lower interest rates exacerbating risks in the housing market has diminished.

“Taking all these considerations into account, the board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.”

Neville Sanders, president of The Real Estate Institute of Australia (REIA), welcomes today’s news.

“With an official interest rate of just 1.5 per cent, homeowners can expect a saving of $20 in monthly payments for each $100,000 of borrowings,” he says.

“For those with a mortgage of $500,000, the RBA board’s decision means a saving of $100 per month. But it’s vital that the lenders pass on this rate cut to borrowers in full.”

Background

CoreLogic’s hedonic home value index reported a 6.1 per cent annual rise in capital city dwelling values over the year ending July. CoreLogic head of research Tim Lawless says this is the lowest rate of annual growth since September 2013 and substantially lower than a year ago when dwelling values were rising at almost double the pace.

“Presuming the cash rate cut is passed on to mortgage rates, there is likely to be a renewed level of scrutiny on the housing market, with policy makers wary of a reversal in the slowing housing market growth trend,” Lawless says.

“A resurgence of growth could trigger a new round of regulation from APRA aimed at limiting growth in investment lending and/or tightening loan to valuation ratio requirements for lenders.”

Lawless says the latest interest decision is likely to keep a base level of demand across the housing market, however other factors such as affordability constraints, higher supply levels, tighter lending conditions and weak rental markets are likely to see growth conditions continue moderating back to more sustainable levels.

Mortgage Choice chief executive officer John Flavell says there’s been an increasing number of borrowers choosing variable rate home loans due to ongoing speculation about today’s results.

According to Mortgage Choice’s latest national home loan approval data, variable rate home loans accounted for 79.76 per cent of all loans written throughout the month of July – up 0.82 per cent from 78.94 per cent the month prior.
Flavell believes interest rates will likely stay very low for the foreseeable future, which benefits mortgage holders.

“The historically low rate environment is helping to keep heat in the property market,” he says.

About API

Founded in 1997, API is Australia's highest-selling property magazine.

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