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The cash rate is now 3.60 per cent after the RBA cut by 25 basis points at yesterday’s (12 August) monetary policy meeting.
Each of the major banks as well as a variety of other banks and non banks have implemented the revised target in full. This will bring some much-needed relief to consumers as monthly repayments are slashed.
Research from Compare the Market revealed that for a $750,000 owner-occupied loan with a variable interest rate of 6.3 per cent, one 25-bp drop would save them $122 each month.
If you add up the three cash rate cuts of 2025, totalling 75 bps, that’s a monthly saving of $384.
Easing the burden for borrowers even further is just how quickly each lender is passing on these changes.
Following the first rate cut in over four years back in February, there was a lot of scrutiny placed on lenders that didn’t pass along the 25-bp reduction in full.
Borrowers were already stretched thin, and the inaction from some lenders was a slap in the face after waiting for years for some relief.
The May cut saw some faster action, but still had some that didn’t pass along the revised recommendation.
Now, at the third cut of the year, Money.com.au’s mortgage expert Debbie Hays said there is a lot of pressure on lenders to act quickly, and those that don’t could face a “PR nightmare.”
“There’s greater scrutiny on lenders this time around because borrowers were already expecting relief last month and they didn’t get it,” she said.
Some lenders got in early and were cutting rates in anticipation of the August decision.
It will take some time for the dust to settle before those that aren’t passing along the cut can be identified.
Impacts on brokers
MFAA CEO Anja Pannek said that there will be busy times ahead for brokers as clients look to capitalise on the reduced rates. She also said brokers expect lenders to pass down the full 25-bp cut.
Pannek encouraged borrowers to reach out to their broker to secure a loan or refinance their current one.
FBAA managing director Peter White said the cut is likely to see an influx of consumers inquiring as to whether they should be on a fixed or variable rate.
He recommended a part-fixed and part-variable rate structure for those who are unsure.
“It is important to note that there is no ‘one size fits all’ when it comes to the best mortgage product,” said White.
Impacts on businesses
There are a variety of benefits set to boost business confidence and cash flows.
Prime Capital CEO Steve Sampson said that Aussie SMEs are positioned to leverage the reduced rates to invest in growth as billions of dollars in working capital are freed up.
He said that historically, small business lending volumes rise by 8–12 per cent in the year following a rate cut.
“Rate cuts don’t just lower repayments – they can completely change a business’s trajectory,” said Sampson.
These views were shared by Prospa’s national sales manager Paul Evans, who said the cut “serves as a green light for growth.”
He said that brokers should expect increased attention from SME clients looking to leverage lower rates to invest in their business.
“A rate cut can provide double benefits: it lowers mortgage repayments at home and reduces borrowing costs for businesses. This can free up hundreds of dollars each month, allowing SMEs to move beyond ‘business as usual’ and invest in people, inventory, and systems. Brokers play a crucial role in helping these businesses identify and act on these opportunities,” said Evans.
Further, the extra money in consumers’ pockets means they’re likely to spend more with businesses, improving cash flow.
Impacts on the housing market
On the residential side, the rate cut will boost the demand for property as borrowers unlock extra borrowing power.
Adam Gringlas, managing director at Jadig Finance and Simple Property Loans, expects this to usher in a new wave of home buyers.
While this will place strain on an already undersupplied market, HIA senior economist Tom Devitt said that despite this, he expects more homes to be built due to lower rates.
“Elevated population growth and government job creation have created demand for new homes and will continue to support ongoing growth in the number of new home starts,” said Devitt.
This will keep inflationary pressures high and could result in a “short-lived” rate cut cycle, he added.
Cotality’s research director Tim Lawless expects the housing markets to respond positively to the rate drop. Affordability challenges are likely to keep the market in check by mitigating any supply issues.
[Related: Borrowers breathe sigh of relief as RBA cuts rates]
