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The central bank has cut interest rates by 25 basis points, bringing the cash rate target to 3.60 per cent.
The decision was unanimous, with the entire board voting to cut.
Borrowers are likely to feel a slight relief from the reduced rates as lenders begin to implement the changes.
According to Canstar, if a lender implements the full 0.25 per cent cut, borrowers with a $600,000 mortgage will have an extra $89 in their pocket each month, and 5.54 per cent will be the new average owner-occupier variable rate.
The latest CPI data saw inflation fall to 2.1 per cent and trimmed mean inflation, which is an indicator for underlying inflation, fall to 2.7 per cent. This was the ammo the RBA needed to follow through with a rate cut.
Economists, including the big four banks, were widely expecting this outcome. However, after the last shock upset in July, there was still some cautiousness.
Industry heads react
Figureheads of the industry have reacted to the cut, with sentiments in support of some relief for borrowers.
Mortgage Choice CEO Anthony Waldron said that the current rate environment saw just about all (98 per cent) of submissions in July lock in a variable rate.
The cut will benefit this massive cohort of borrowers. For those on fixed rates, refinancing is likely to follow.
Waldron said nearly a third (31 per cent) of submissions in July were from borrowers looking to refinance.
Pepper Money’s general manager, mortgages and commercial lending, Barry Saoud, said the cut will benefit the housing market as it will boost borrowing capacity, lift buyer sentiment, and re-energise demand.
“In the non-bank space, certainty fuels confidence, and confidence creates momentum. We’re already seeing further improvement in borrower appetite to buy, refinance, or invest,” said Saoud.
For SMEs, the rate cut will open opportunities for consolidation and refinancing, providing some much-needed extra cash.
Despite this, Valiant Finance CEO and co-founder Alex Molloy said there are still challenges that will persist.
“Some sectors, like hospitality, will still face hurdles, with lenders cautious about newer operators and rate cuts alone won’t improve access to credit, ongoing confidence will be essential to unlock growth,” explained Molloy.
Connective’s executive director Mark Haron agreed and said the cut is not a “silver bullet” for borrowers.
However, he did note that it provides some psychological relief and could help stimulate consumer confidence.
“We are already seeing signs of momentum build. Pre-approval applications rose 13 per cent in the second quarter of this year compared to the same period last year, with loan volumes up 23 per cent. That disconnect reflects two things: rising property prices and improved borrowing capacity as lenders began easing rates,” said Haron.
He believes there is room for one or two more cuts this year.
As recently reported by Broker Daily, the 25-bp cut will boost borrowing power for Aussie families.
An analysis by Domain revealed just how much extra borrowing power this cut will grant Aussie households, based upon how much they earn:
- For an income of $50,000, borrowing power would be lifted to $4,000.
- $100,000: $11,400
- $150,000: $17,300
- $200,000: $23,700
- $250,000: $30,900
- $300,000: $37,000
- $350,000: $42,100
- $400,000: $48,700
