Rate cut may deliver relief to mortgage owners

Home owners will likely welcome the recent decision by the Reserve Bank of Australia (RBA) to cut the official cash rate by 25 basis points to 3.25 per cent.

At its monthly meeting yesterday (October 2), the RBA concluded that economic conditions deemed a rate cut suitable to address economic concerns.

RBA governor Glenn Stevens referenced a weak growth outlook and consistent inflation as reasons behind the move.

“The board therefore decided that it was appropriate for the stance of monetary policy to be a little more accommodative,” he said.

Whether you are applying for your first home loan or paying off your property investment loans, the rate reduction will likely come as good news.

Real Estate Institute of Australia (REIA) president Pamela Bennett welcomed the RBA’s decision and said the relief provided should ease financial stress for prospective buyers and real estate owners alike.

“Home owners always like to see interest rates go down. This cut means the average loan repayment is reduced from $2,155 to $2,105 or by $50 per month,” she said.

Ms Bennett described the average loan repayment as $486 weekly – $153 lower than this time in 2011.

“Housing affordability will improve by 2.5 per cent with the proportion of the median family income to meet average loan repayments decreasing from 31.9 per cent to 31.1 per cent,” she said.

She said the rate cut should provide the much needed incentive for buyers to take advantage of improved affordability in the market, noting that other factors such as red tape and inefficient taxation have caused them to be cautious.

However, Ms Bennett stressed that in order for the rate cut to be truly effective, lenders must pass it on in full to borrowers.