The Downlow: C&G on February’s RBA Announcement

The nation’s official cash rate finally saw a change this month, with the RBA announcing its first interest rate cut since August 2013, taking us to a new record low of 2.25%. In today’s C&G blog, we look at how this will cut to the cash rate will affect the property market for existing and first-home buyers.

After almost a year and a half of stasis, the Reserve Bank of Australia has lowered the 2.5% national cash rate by 25 basis points to a new record low of 2.25%. It’s a move many economists were expecting, and one the RBA says is designed “to further stimulate business activity and household spending in the face of slowing growth, low commodity prices and sluggish investment”. But what does this mean for those looking to buy homes, either for the first or fifth time?

For mortgage holders, it provides additional relief from the growing cost of living, happily following on from the recent drop in petrol prices. Beta Shared chief economist David Bassanese believes the interest cut will “help support confidence generally”, which is always a good thing.

It’s also good news for most home buyers. If you’re looking to upgrade and make the move to a bigger or better home, you can expect to see cheaper loans (if the banks pass on the savings in full), allowing you the opportunity to lock in finance at a competitively low rate. While the savings may not be huge on average home loans (the average Victorian mortgage holder would save about $47 a month) those with larger mortgages can expect more substantial relief.

If you have recently sold your investment property, the cash rate cut may be the tipping point that encourages your return to the property market. Lower rates mean a smaller gap between incoming rent and outgoing mortgage repayments.

Experts also believe the cut will boost building construction to meet increased demand for property from first home buyers keen to purchase off-the-plan apartments, in addition to overseas investors and interstate migrants to Victoria.

For potential buyers still renting, more competitive interest rates could hamper savings progress due to rising property prices - but overall it will give first home owners confidence to join the market. REINSW president Malcolm Gunning recommends remembering that - at some point - the current record low interest rates will come to an end, advising “It’s important not to over-commit yourself and be prepared for future rate rises”.