RBA DELIVERS SOME CHRISTMAS CHEER WITH DECEMBER RATE CUT

By Larry Schlesinger, www.propertyobserver.com.au

The Reserve Bank has cut the cash rate to 3% today, as tipped by most economists.

The new setting is the lowest the cash rate has been since a period from April to September 2009, following the GFC.

Traditionally, the RBA is reluctant to cut rates in December, doing so at less than a third of December monetary policy meetings going back to 1990.

A 25 basis point rate cut, if passed on in full by lenders will save a borrower with a 25-year mortgage of $300,000 about $48 per month.

“The Reserve Bank has boosted consumer confidence in time for what is traditionally the most expensive season of the year. Even though rate cuts won’t be filtered through to most variable mortgage holders until January, borrowers are likely to feel more positive about spending money this Christmas," says Michelle Hutchison, spokesperson for financial comparison website RateCity.com.au. 

“Borrowers with a typical $300,000 mortgage can expect to save about $40 in monthly repayments from next month as most lenders are likely to pass on 20 basis points. But there’s a significant difference between what lenders will pass on and the interest rates they offer.

“For instance, following the last rate cut in October, lenders passed on between 4 and 25 basis points according to RateCity. Variable interest rates range from 5.4% up to 7.2%, which is worth about $352 in extra monthly repayments for a $300,000 home loan (over 30 years).

“If you have time off over Christmas, borrowers should take advantage of their spare time by finding out how much your lender passed on, what your interest rate is and how it measures up to the rest of the home loan market.”

The RBA would have taken into account a benign inflation rate, house prices flat and manufacturing sector continuing to contract at a sharp pace and flat retail sales in October.

Earlier today, the ABS reported that building approvals fell 7.8% in October, greater than expectations of a 1.6% fall.

Mortgage holders must now wait to hear over the next few days how much of the rate cut will be passed on by lenders to borrowers.

 

ANZ mortgage holders have a long wait - until Friday the 14 December - to hear if the bank will reduce its variable rates as part of its independent interest rate decision on the second Friday of every month.

Speaking to David Koch on Sunrise last week, Aussie Home Loans boss John Symond said he did not expect the banks to pass on the full rate cut, but probably 20 out of 25 basis points.

The Reserve Bank’s monetary policy committee will next meet in February – there is no meeting in January.