The last few months have been peppered with talk about rate cuts and how it will become easier to enter the property market. Baffled by information overload? We’ll break it down for you.
In early June, the Reserve Bank of Australia (RBA) announced they would cut the cash rate to an unprecedented low to stimulate the economy, encourage job growth and support a flagging property market.
For the uninitiated, the cash rate reflects the market interest rate on overnight funds banks lend to one another to meet their daily needs. It serves as the benchmark rate for everything from savings accounts to mortgages. In this way, lowering the cash rate helps boost the economy as it inspires spending and investment on things like property.
The first cut of 25 basis points in June brought the cash rate to 1.25% before it was reduced again to a record low of 1% at the beginning of July, marking the first back-to-back cut to interest rates since 2012.
How this benefits the housing market
The current low interest rate environment makes it easier for those just entering the market or who had previously found it difficult to. Cheaper finance comes on the heels of changes to serviceability rules, meaning borrowers will now be tested on their ability to repay a loan at a lower hypothetical rate.
The term “bottoming out” has been floating around for a while, too. Despite the name, it’s actually a good thing for the housing market. Increased interest from buyers who previously couldn’t get into the market and lower mortgage rates mean prices will likely stop falling (“bottom out”) and begin rising again over the next year.
The big bank changes
So, what has this meant for the big banks? Let’s take a look!
Westpac changed their home-loan serviceability floor rate to 5.75%. Variable home loans for owner-occupiers were reduced to 4.98% for principal and interest repayments and 5.57% for interest-only repayments.
Commonwealth Bank dropped its floor rate to 5.75%. They also cut standard variable rate home loans for owner-occupier and interest-only loans to 4.93% and 5.42%, respectively.
ANZ reduced their variable home loans to 4.93% for standard variable rate owner-occupier loans. For standard variable interest-only repayments, it was brought down to 5.48%. The bank also cut its serviceability rate to 5.5%.
NAB cut loans for owner-occupiers to 5.11% and interest-only to 5.8%. They also lowered its interest rate floor to 5.5% for lending, in line with ANZ.
St. George, BankSA and Bank of Melbourne all adjusted their floor rates to 5.75% from 7.25%. Suncorp Bank dropped its rate to 5.5% while Macquarie’s is lowest at 5.3%.