Spring housing markets across Australia are expected to be a hive of activity after the Reserve Bank of Australia (RBA) dropped the official cash rate to 1.5%. This rate decrease, if fully passed on by lenders, should encourage home buyers to extend themselves and more sellers to put their property on the market.
This cut in interest will boost home affordability and also buyer and seller confidence. At present, the number of homes on the market is low. Therefore, demand is greater than supply, which always pushes up prices. If more sellers are encouraged to put their home on the market, then supply should increase and this, in turn, will ease demand and home price growth. This more consistent housing market should boost housing activity.
There is a current shortage of stock in many housing markets across Australia, which is controlling price growth. With the peak selling season now only a month away, this drop in interest should see more potential home buyers stretch themselves financially to buy a home.
Real estate agents in Sydney and Melbourne are anticipating that these markets will strengthen over Spring, as a shortage of stock has restricted price growth in these markets over the last quarter. More listings say the agents, will give the market sustainability.
Major Australian home lenders The Commonwealth Bank (CBA), National Australia Bank (NAB), The Australian New Zealand Banking Group (ANZ), and the Westpac have announced that they will only pass on a portion of the rate cut. The CBA will drop home loan rates by 0.13%, and the NAB by 0.1%. While the ANZ will reduce lending rates by 0.12%, and the Westpac by 0.14%.
The announcement of not passing on the full RBA rate cut has sparked outrage amongst bank customers. With many turning to social media to vent this anger.
Current standard variable rates for each of the major lenders, after rate cuts, are as follows:
For borrowers who are seeking a better deal than the major Australian banks are offering, then mortgage brokers suggest looking at non-bank lenders. Many credit unions and building societies are passing on the full rate cut, making them far more competitive than the majors.This move by the smaller lenders could see them gain a larger share of the market.
The reason why these small lenders can pass on the full rate cut, is they are not subject to the same Australian Prudential Regulation Authority (APRA) rulings that Australians major banks must follow. Therefore, they can offer borrowers low rates to encourage them to use their services.
CoreLogic is suggesting that this latest rate cut, which takes the Australian official cash rate to an all-time low, will see APRA change its legislation. This move, says Tim Lawless head of CoreLogic research, will limit home loan and investment lending growth, and will tighten borrowing requirements, especially regarding home-to-value ratios. For potential home buyers, this means that they may need a larger home deposit to be eligible to buy a property.
The RBA, who aim to stimulate economic growth by decreasing borrowing rates, has been stalemated by APRA. With an aim to tighten lending and increase bank holdings, APRA has encouraged the major banks to increase domestic deposit rates, which they have done.
While the RBAs decision to lower the official cash rate sees Australia enter the untested ground, many economists are suggesting that monetary policy has lost its effectiveness. According to these economists, monetary policy had more clout 20-years ago. This reduction in its ability to stimulate positive change may see the role of economic stimulation be handled more by the Federal Budget and less by the RBA. Some economists are suggesting that the August rate cut may go down in history as the time when monetary policy became irrelevant.
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