RBA cuts rates as homeowners breathe a sigh of relief

Markets had priced in today’s rate cut with certainty, a sure sign that an easing of monetary policy reflects the bank’s confidence in Australia’s progress on fighting inflation.

The new cash rate of 4.10% takes the country back to the same position as October 2023, when trimmed mean inflation was 5.3%.

Almost 14 consecutive months with rates at a 13-year high of 4.35% has more than taken its toll on both homeowners and prospective buyers.

The tough line from RBA governor Michele Bullock has paid off well however, with December quarterly inflation data recording a current trimmed mean of 3.2%.

While still outside the bank’s 2-3% target for fiscal stability, homeowners can feel confident that the macroeconomic environment is beginning to soften.

Mortgage Choice chief executive Anthony Waldron said today’s cut will be welcomed by both borrowers and prospective buyers.

“I think we can expect competition to heat up in the home loan market,” he added. “I encourage borrowers to seize this opportunity to secure a better rate.”

Mortgage Choice chief executive Anthony Waldron says competition in the home loan market is set to heat up. Picture: supplied

REA Group senior economist Eleanor Creagh agreed buyer confidence and borrowing capacities will both get a boost from today’s cut.

“As a result, the house-price falls seen over the past two months are likely to be short lived and may reverse with the slight improvement to affordability and buyer confidence driving renewed demand and price growth,” she said.

How to save thousands

Many homeowners on variable rates will no doubt be in need of some relief when it comes to repayments.

For those who can keep their own rates on hold or maintain the same level of repayment, huge savings could be ahead.

While paying less back on your home loan when rates are low is what draws many to a variable loan in the first place, paying off a loan early could work out best in the long run.

'Preparing for a home loan application': youtube.com/mortgagechoice

Trusted Finance founder and director Rob Roper said continuing to make the same monthly repayments – if you can afford to – can make a big difference.

“On a $600,000 home loan at 6.5%pa on a 30-year loan term the minimum repayment is $3,793 per month. A rate reduction of 0.25% down to 6.25% would reduce the minimum monthly repayment by $98, down to $3,695,” Mr Roper said.

“If you continued to make a repayment of $3,793 on the 6.25% pa home loan, you would shave two years off the life of the loan and more importantly, you would save over $61,000 in interest charged by your bank.”

Banks and rates respond

While there is no guarantee big banks and lenders will pass on the benefits of today’s rate cut to mortgage holders, it’s already looking positive for many.

National Australia Bank was the first of the big four to slash fixed rates two weeks ago – a move only preceded by Macquarie Bank.

'The Reserve Bank of Australia and the cash rate': youtube.com/mortgagechoice

Australia’s second-largest lender, Westpac, was also quick to move in on talk of a rate cut, last week cutting its short-term fixed rate mortgages.

The bank now has the lowest fixed rate mortgage options out of the big four, with its lowest offer now 5.59%.

Mortgage Choice data for the December quarter shows fixed-rate demand is continuing the surge it has been on since July, with demand up 177.7% year-on-year.

“Mortgage Choice brokers are reporting they’re seeing increasing numbers of buyers ready to put their property plans into action,” Mr Waldron said. “Many more are also interest in refinancing.”

Last month was the strongest January on record for Mortgage Choice home loan submissions, showing a strong start to what promises to be a more positive year for borrowers.

“It is a sign that borrowers are expecting rates to fall even further,” Mr Waldron said. “96% of our loans submitted by our brokers in January were for variable home loan products.”

The Reserve Bank of Australia will make its next decision on the cash rate on 1 April. Picture: News Corp Australia.

Strike while the iron is hot

Borrowers are feeling the benefits of almost six months of clear positive progress in the fight against inflation, though that progress will need to be maintained to keep rates lower.

The Australian Bureau of Statistics will release its next update on inflation next week which will provide a strong indicator of whether the downward trajectory from the December quarter has ticked over into 2025.

In the meantime, competition in the home-loan market is set to be fierce off the back of today’s rate cut, meaning borrowers and prospective buyers are in a prime position to strike a hot deal.

“If you haven’t had your loan reviewed in the past year, chat with your broker to ensure your loan still meets your needs,” Mr Waldron said.

“If you’re looking to buy property soon, make an appointment to make sure you’re ready to apply for a loan as soon as you find the right property.”