• Vanessa Paech, 3 Feb 2015
  • Source: Realestate.com.au
In its meeting today the Reserve Bank of Australia have moved to cut interest rates to 2.25% p.a., paving the way for the cheapest home loans in 40 years.  The decision was one most experts were predicting, though the majority had pegged it to occur later in the year.Economists still agree a further reduction in rates is likely in 2015, in an effort to buoy our employment figures and continue the economic reset of the post-resources boom era.According to RBA Governor Glenn Stevens, the Board has “taken time to assess the effects of the substantial easing in policy that had already been put in place and monitored developments in Australia and abroad.”

Stevens says the cut is expected to add some further support to demand, “to foster sustainable growth and inflation outcomes consistent with the target,” citing modest income growth and the Australian dollar, which fell steeply in the wake of the RBA’s announcement.

Political instability may also factor into the decision, with confidence waning in some areas of the economy as Canberra sees increased leadership speculation.

The Reserve Bank has to strike a balance between economic growth and growth that risks overstimulating the housing market.

House in SA

Experts missed the early mark

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

Dwelling values Australia’s capital cities have increased by 19.6% since rates began their downward trend in November 2011.

“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.”

Lawless says the cut could see the standard variable mortgage rate fall to 5.7% and discounted variable rates to 4.85% – the cheapest home loans since July 1968.

finder.com.au spokesperson Michelle Hutchinson agrees today’s cut was quicker than anticipated.

“28 of the 30 leading economists and experts from the finder.com.au Reserve Bank Survey got it wrong, as they were forecasting no change today,” she says.

“There is still a chance we’ll see the Reserve Bank lift the cash rate, with 16 of 30 experts expecting to see a rise within the next 18 months.”

Will lenders pass it on?

“We hope lenders will pass on the full rate cuts and more to their variable rate home loan customers because there’s no excuse not to pass on the full cuts,” says Hutchinson.

Bank of Queensland has already announced it will lower rates in line with the news.

 

For the full story visit http://www.realestate.com.au/blog/rba-rates-february-2015/?pid=ref-buy-homepage-feature-1