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The RBA’s decision to cut rates for the third time this year was widely anticipated, following two previous cuts that had already begun reshaping borrowing conditions.
This reduction was passed on in full by most lenders looking to avoid backlash experienced in earlier rate movements.
Self-employed borrowers should expect some positive times ahead following the cut as they reap the benefits in two key areas:
- Increased borrowing capacity - Lower rates improve serviceability, allowing business owners to access more funding for expansion or investment.
- Consumer spending boost - As mortgage holders see reduced repayments, they may have more disposable income to spend at small businesses.
This was discussed in a recent episode of Finance Specialist. Here, co-host and Accendo Financial’s partner Trent Carter said rate cuts are often even more significant for business owners as they are for home owners.
“While the PAYG borrower gets the little hit from the rate cut, save it into the mortgage, I’ve got more to spend with these small businesses, the business owner is getting a little bit of a reprieve on both sides over time as well as potentially more spending power that goes into these businesses,” said Carter.
Conversely, this means interest rate hikes can be twice as impactful on businesses as repayments increase and consumer spending plummets.
For brokers, the current environment presents a prime opportunity to engage with clients and explore non-traditional lending solutions.
With self-employed borrowers benefiting from the rate cuts more than anyone, it could be a great time for brokers who were thinking about diversifying to make the leap.
Carter stressed the importance of communication. He urged brokers to educate themselves so they’re able to have industry conversations and position themselves as a finance specialist.
By helping clients navigate complex lending scenarios, brokers can build long-term relationships and generate referrals within the tight-knit small-business community.
“No one wakes up in the morning and says I need a million dollars’ worth of debt. They’ve got a problem that that debt will solve. You can be that problem solver. You’ve got clients for life, you’re building genuine relationships,” said Carter.
With more RBA meetings scheduled before year end, further rate adjustments could be on the horizon. For now, the focus remains on how borrowers and businesses adapt to the changing financial landscape.
While an interest rate cut isn’t the silver bullet to fix all problems, it provides a short-term sugar hit that boosts optimism.
Still, it’s important to drive home with clients that the full economic benefits can take nine to 12 months to fully materialise, said Carter.
[Related: Brokers brace for confidence boost among self-employed borrowers]
