Rates slashed to 3.85% as RBA cutting cycle kicks off

The Reserve Bank of Australia (RBA) board today confirmed a 3.85% cash rate, marking the lowest rate Australians have experienced in over two years.

“Both buyer confidence and borrowing capacities will be buoyed as interest rates continue to fall,” REA Group senior economist Eleanor Creagh said. “This will help to drive demand and home price growth.”

Homeowners are also in line for major savings off the back of today’s rate cut.

Mortgage Choice has calculated the savings Aussies with various mortgage sizes can expect, assuming a current mortgage rate for new borrowers of 6.01%.

Will the cut be passed on to you?

Athena chief executive (CEO) and co-founder Nathan Walsh said he expects plenty of lenders to pass today’s cuts directly on to mortgage holders.

'How interest rate cuts affect the property market': youtube.com/mortgagechoice

“At a time when the cost-of-living crisis continues to challenge so many Aussies, acting swiftly to bring some relief to home loaners has to be a priority for all lenders,” he said.

“If lenders pass on the 25-basis point cut in full to a 6.01% interest rate, on a $600,000 loan balance would mean a saving of nearly $100 a month,” Mortgage Choice CEO Anthony Waldron confirmed.

Just how fast a cash-rate cut is passed down to homeowners could make all the difference when it comes to savings hard-earned dollars, Mr Walsh added.

“Australia’s major banks have an unreliable track record in passing on in-cycle rate decreases,” he warned. “History shows they take between 10 days to two weeks to pass on a rate cut – a delay which, in February, cost Aussie borrowers approximately $115m in excess interest.”

A number of lenders have already passed on cuts to variable rates since the start of April, which come in addition to those handed down following the February rate cut.

'Myths about variable home loans': youtube.com/mortgagechoice

Commonwealth Bank, Macquarie Bank, AMP Bank, St George, Bank of Melbourne and Bank of Queensland are among those which have, spelling positive news for thousands of mortgage holders expecting to see lenders increase their competitive offerings.

Inflation horizon softens

Today’s rates decision is the first since the confirmation that the Australian economy had passed a major turning point in the fight against inflation.

Quarterly Consumer Price Index data published by the Australian Bureau of Statistics at the end of April showed trimmed mean inflation has finally landed within RBA’s 2-3% target range, with its lowest reading in more than three years.

Mr Waldron said the ABS had made “a compelling case” for today’s rate cut.

“It revealed the annual inflation rate was within the RBA’s target range, while the labour force survey showed the unemployment rate had edged up higher," he said. 

Mortgage Choice CEO Anthony Waldron says prospective owners who were holding out for this rate cut should move quickly to get into the market. Picture: supplied

“The RBA board would be acutely aware of the risk that global economic uncertainty presents to the nation’s outlook and a cut to the cash rate will help stimulate demand in our economy.”

Board boss and RBA governor Michele Bullock has been consistent in her line of messaging around inflation in the months before the February cut. On the back of continued calls for her to take more decisive action and provide cost-of-living relief, Ms Bullock confirmed rate cuts would only come once the bank could be convinced inflation was returning to lower levels in a sustainable way.

Low inflation is of vital importance to mortgage holders hoping to see more relief from the bank this year. Stimulating economic activity over the winter months will be key for the Reserve Bank, who will next meet on 9 July at the start of the 2025-26 financial year.

“If you've been holding out for this rate cut to put your purchase plans into action, speak to a broker to understand your borrowing power and secure a pre-approval,” Mr Waldron said.

“As we wait for lenders to review their rates, it’s a great time to chat to your mortgage broker to find out if your home loan is still the right one for your needs.”