Several representatives from the mortgage broking industry have welcomed the central bank’s decision to further reduce the official cash rate, but concern is rising about the shape of the economy.
On Tuesday (2 July), the Reserve Bank of Australia (RBA) announced that it was to cut the official cash rate to a new record low of 1.0 per cent, in line with the expectations of the majority of industry.
Last month, the RBA cut rates for the first time in almost two years and acknowledged that further cuts to the cash rate were “more likely than not” (with governor Philip Lowe also conceding that the market was not “making any inroads into the economy’s spare capacity”).
In his statement this month, governor Lowe said that while the outlook for the global and Australian economy remain “reasonable”, he noted a range of factors that were considered when arriving at this month’s decision to cut rates, including the “soft” housing market, global economic impacts, below-trend growth in the Australian economy and “subdued” consumption growth, among other factors.
“[The] decision to lower the cash rate will help make further inroads into the spare capacity in the economy. It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target,” Mr Lowe said.
“The board will continue to monitor developments in the labour market closely and adjust monetary policy if needed to support sustainable growth in the economy and the achievement of the inflation target over time.”
Several lenders – including ANZ, Resimac and Athena Home Loans – have already confirmed they would pass the rate cut on in full. However, CBA, NAB and Westpac have only passed on some of the rate cut to customers.
The Finance Brokers Association of Australia’s (FBAA) managing director, Peter White, welcomed the rate cut but urged consumers not to spend all their windfall.
“The Reserve Bank has admitted to concerns about the weakening jobs market and economic growth as well as risks to the global economy. These all point to the need for a cautionary approach.
“The banks need to pass this rate cut on in full and I would urge borrowers to pay some of their debt down by maintaining their repayments at the levels before the June rate cut.”
He added: “I understand the need for consumer spending to boost the economy, but I also respect the need for Australians to increase their net wealth position and provide some safeguards in an economy which still has some downside.”
The head of the Mortgage & Finance Association of Australia (MFAA), Mike Felton, said that the decision was “great news for the housing market, home borrowers and the economy but exceptionally disappointing that three of the four majors have not passed on the cut in full.”
“The lower repayments and improved affordability from recent cuts will nevertheless still alleviate some of the pressures currently being felt by existing borrowers and also provide opportunity to first home buyers and those seeking to enter the market.
“Considering this news, now is a particularly good time for customers to be contacting their mortgage broker to ensure they are getting a fair deal that is appropriate to their circumstances and needs.”
Speaking of the decision to drop the cash rate to its lowest level ever, just a month after it had fallen to 1.25 per cent for the first time, Mortgage Choice CEO Susan Mitchell suggested that the cumulative 50-basis-point reduction could give the average Australian mortgage-holder with a $545,000 home loan an approximate saving of $220 per month (should their lender pass on both rates in full).
Ms Mitchell continued: “Governor Lowe had previously stated that a single reduction to the cash rate would not have provided sufficient stimulus to the economy and that a second rate cut would be warranted. Key economic data has driven the RBA board to cut the cash rate for a second consecutive month today, cementing the RBA’s new stance on monetary policy.
“There was no doubt that a second rate cut was on the cards later this year; however, data from the labour market and the national accounts drove the board to deliver further monetary policy stimulus sooner rather than later.”
Ms Mitchell noted that the last rate cut resulted in only half the lenders on the Mortgage Choice panel passing the full reduction on to borrowers.
“[I]t remains to be seen whether they take the same approach this time around,” she said.
According to Ms Mitchell, the federal election outcome and “the removal of the threat to tax policy” may be “bolstering confidence” in the housing market, with recent data from CoreLogic showing that dwelling values in Sydney and Melbourne have begun improving.
“[W]ith APRA’s current consultation with lenders to reduce the serviceability buffer and floor potentially improving access to credit, there will be more good news on the horizon for the housing market,” Ms Mitchell said.
She added that, regardless of what the RBA decides going forward, it was a “fantastic time” for first home buyers to speak to a broker and “take advantage of record low interest rates”, adding that she would “encourage borrowers who have benefited from the cash rate reductions to review their finances” and “consult expert advice from their mortgage broker”.
Likewise, Aussie’s chief customer officer, David Smith, said: “While lenders decide how much they pass on to customers, the real power today sits with borrowers, who should get in touch with their mortgage broker or lender and check they still have a competitive deal. With Australia’s cash rate at a new record low, there has never been a better time to strike a great home loan deal.”
However, Mr Smith said that the decision to reduce the cash rate “confirms the economy is slowing”.
He said: “We haven’t seen back-to-back rate cuts from the RBA since 2012, and this time around it’s a move designed to support the jobs market and keep Australia on track for growth.
“The RBA is clearly conscious of the need to keep the economy ticking over in view of both local and overseas conditions.
“Home owners should now know how their lender responded to the June rate cut, and all eyes will now be firmly back on our banks and lenders as they regroup to respond to a second rate cut in as many months,” he said.
Empower Wealth’s director and broker, Ben Kingsley, who is also chair of the Property Investors Council of Australia, noted that what is particularly interesting about the RBA’s rate move and commentary is its “decision to go aggressively after unemployment and try and lift the real wages” while relying on APRA to do more of the heavy lifting around the housing market.
Mr Kingsley said: “[This is] effectively giving them a second lever, which I’m calling a top-down lever.
“[W]hereas, traditionally, credit policy was a bottom-up lever that would allow them to bring cash into the economy, now the RBA can bring cash into the economy [and] you can start to see APRA playing a bigger role in controlling property values. So it means that money can be cheaper for business or personal credit... but you can actually still see APRA playing a more important role in terms of ensuring that property prices don’t get ahead of themselves like they did in 2017,” he said.
“What we do want to see is steady, gradual growth over the next couple of years,” Mr Kingsley said, concluding: “[There are] interesting times ahead. I don’t think we’re done now... so we’ll probably see further rate cuts later this year after that tax stimulus rolls through, and then we’ll see where wages growth goes and that will ultimately decide what the RBA [will] do in the future.”
[Related: Cash rate slashed to new low]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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