Laura Akhurst - 24 Feb, 2015

How Interest Rate Cuts Will Effect the Australian Economy

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Home owners and investors alike will feel the benefits of the Reserve Bank of Australia (RBA) official cash rate cut, which was implemented on February the 3rd of 2015. The current cash rate stands at 2.25 percent.

The most profound effects this cut will have are as follows:

1.  Investors will continue to invest – Borrowing has become cheaper, and this means that it’s more affordable for more investors who are seeking to take advantage of the depreciation benefits of property ownership. Therefore, expect to see more investors buying up property that first home buyers usually seek out. These investors will be looking for high capital gains.

2.  First home buyers will have tougher competition – With more investors looking to snap up investment property, it is likely that first home buyers will have to wait before they’ll be able to break into the market. Two bedroom homes in prime locations and properties on corner blocks with redevelopment potential will be on the investor hotlist.

3.  Housing bubbles – Undoubtedly with an increase in investor demand comes a price rise in property, and this can cause a bubble to develop in the housing market. The RBA will need to watch this carefully, But, at present the market isn’t overpriced. In fact, it’s only just starting to gain ground.

4.  Access to money has become more affordable – The last time Australians saw interest rates this low was in the 1970s. At this time, a home loan was below 5 percent. With money being cheaper to obtain, it is highly likely that more Australians will consider how they can invest for their futures.

5.  Consumer confidence will grow – Reducing the official cash rate is expected to increase consumer confidence, and to encourage spending. The philosophy being utilised is that money is cheaper to come by, so therefore people will take greater risks. But, this tactic has not worked in the past. So it will be interesting to see if it will now.

6.  Unemployment should stabilise – If consumer confidence grows, then spending will increase. This, in turn, will lead to the creation of more jobs and the economy beginning to pick-up. But, this tactic relies heavily on consumers spending, rather than saving.

Do you want to find a better interest rate? If so, then contact eChoice and find the right home loan for you.

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