Lenders urged to pass through savings without delay
The Reserve Bank of Australia (RBA) made the widely expected decision to slash interest rates by another 25 basis points on Tuesday, marking the second cut of the year to bring the cash rate to 3.85%.
It marked the first time the overnight rate moved below 4% in over two years.
“Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance,” RBA policymakers said. “Data on inflation for the March quarter provided further evidence that inflation continues to ease.”
The cut prompted industry heads in the mortgage broking sector to call on lenders to pass savings through to home loans customers.
Peter White, managing director of the Finance Brokers Association of Australia (FBAA), encouraged all lenders to reduce their variable rates “immediately and in full” to reflect the cut.
Anja Pannek (pictured), chief executive of the Mortgage and Finance Association of Australia (MFAA), said the body’s members “expect lenders to pass the rate cuts on in full, given ongoing cost of living and mortgage pressures.”
“We’ve seen all major banks pass the rate cut on in full post the RBA announcement,” Pannek said. “We expect all lenders will follow suit.” Most lenders have opted to pass on the 25bps reduction in the coming weeks rather than immediately.
Pannek welcomed the RBA’s decision to cut rates but cautioned that the benefits will take time to materialise.
She recommended that borrowers chat to their broker about their options. “This is a great time for borrowers to contact an MFAA accredited broker and discuss their home loan financing options – whether they are buying their first home, refinancing, investing in property, or seeking a better deal with their existing lender,” she said.
More reactions from broking industry
Mortgage Choice chief executive Anthony Waldron said there was “a compelling case” for a cut, given the March quarter CPI index revealed the annual inflation rate was within the RBA’s target range and unemployment rates had ticked higher.
“The cash rate cut will provide a much-needed boost to borrowing capacity for hopeful buyers who stand to see their borrowing capacity rise,” Waldron said.
While lower rates may lift confidence, Mark Haron, executive director at mortgage aggregator Connective, warned that affordability remains a challenge for Australians, “and much of it now hinges on government policies promised during the recent election campaign.” Haron expects a sharp rise in borrower enquiries following the cut.
The cuts “weren't deep enough”, said Specialist Finance Group’s general manager, Blake Buchanan. “The RBA speaks of a soft landing but their actions don't match their language. I would have preferred to see at least 35 points and preferably 60.”
CBA’s group executive, retail banking services, Angus Sullivan said: “Today’s decision will help to deliver some much-needed additional relief for many Australians with a mortgage.
“When combined with the February rate cut this change should free up some more cash flow for homeowners who need it. We know many have had tighter budgets in recent months and will welcome that additional flexibility.”
Home loan customers making principal and interest repayments on an average loan size of $500,000 will save around $80 a month, Sullivan noted.
Encouraging news for renters and businesses
Dan Gallen, chief investment officer at Pallas Capital, called the RBA’s decision “a real shift for the Australian real estate market, and we expect it to spark action across the board.”
Gallen said it made for “encouraging news” for renters who’ve been hoping to buy. “Lower rates will make owning a home more affordable, and improved borrowing power means many will be in a better position to step into the market,” he said.
“We’ll likely see people getting their loan applications ready so they can act quickly when the right opportunity comes up.”
Businesses will also benefit from the rate cut, according to Chris Thomas, executive, commercial broker and equipment finance sales at NAB. “This rate cut not only benefits their businesses but also positively impacts their household budgets if they have home loans with NAB,” Thomas said.
“As Australia’s largest business bank, we know small businesses are the backbone of our economy. Lower interest rates will provide much-needed relief, unlock additional cash flow, and offer an opportunity to plan for the future with greater confidence.”
The rate reduction “could be a game-changer” for developers, added Gallen.
“With confidence starting to return among both owner-occupiers and investors, the pre-sales market is set to pick up again and we expect to see an uptick in valuations,” Gallen said.
“That means projects that have been on hold could finally get moving – and we expect to see fresh activity across the development space.”
The next RBA meeting is scheduled for 7 July.
