Press Release

For immediate release

Information verified correct on December 4th, 2016

A new cash rate of 1.50%, but it’s not all peachy for first home buyers

  • 56% of experts from the finder.com.au RBA Survey predicted the cash rate would fall this month
  • Market analysts believe cash rate will plummet further than 1.5%
  • Experts uncertain about whether now is a good time for first home buyers to buy
  • What to say to your bank following the cash rate cut

2 August, 2016, Sydney, Australia –The Reserve Bank of Australia eased monetary policy by cutting the cash rate by 25 basis points to a new low of 1.50% at their board meeting this afternoon. But despite a low interest rate market, experts are uncertain about whether now is a good time for first home buyers to enter the property market, according to finder.com.au, Australia’s most visited website1.

Experts from the finder.com.au RBA survey, the largest of its kind in Australia, were largely divided about the outcome of today’s board meeting, with 56% (23/41) of experts and economists accurately tipping that the cash rate would fall. The remaining 44% (18/41) thought the cash rate would remain unchanged for August 2016.

Interestingly, 46% of experts cited that the new inflation data, released last week by the Australian Bureau of Statistics (ABS), may have prompted the Reserve Bank’s call to change the cash rate. The year-on-year underlying inflation rate came in at 1.5%, which falls below the RBA’s target rate of 2-3%.

However, today’s cash rate cut may not be the last, with 34% (14 experts) predicting rates to go even lower than 1.50%. Seven experts (18%) are expecting a low of 1.25% and five experts (13%) forecasting 1.00%. One expert went even further, with Jordan Eliseo of ABC Bullion predicting the cash rate to hit 0.50% before it starts to rise.

Graham Cooke, Insights Manager at finder.com.au, says that a lower cash rate will make the cost of borrowing cheaper, but borrowers need to be proactive and seek out money-saving opportunities.

“A low interest rate landscape is attractive for home loan customers as variable repayments become more affordable, but don’t pay the lazy tax by being complacent. Pick up the phone and contact your lender to see whether it’s passing on the rate cut – and when.”

Borrowers should also ask their lender whether the full 25 basis points is being passed on and for which products the rate reduction is being honoured.

“While you’re at it, do an online search to see what else is on offer. Following today’s cut, the home loan market is about to become even more competitive. We’re talking record low rates and the potential to save thousands of dollars.

“For example, if you had a $300,000 mortgage with an average standard variable rate of 4.93% and manage to get the full discount of 0.25% off your interest rate, this could pocket you almost $50 per month, or a whopping $16,325 over the life of your loan. It’s certainly worth hunting around for the best possible rate.

“Use online resources such as a repayment calculator or a switching cost calculator to forecast your calculations so you make an informed decision.”

With regard to purchasing property, survey respondents were divided about whether or not now is a good time for first home buyers with a deposit saved to buy a home. Ten economists who responded to this question (31%) said that now was not a good time to buy, while 11 (34%) said that now was a good time for first home buyers.

This echoes new data from the Australian Bureau of Statistics, as analysed by finder.com.au, that reveals the home loan value gap between first home buyers and non-first home buyers has widened dramatically since 2014.

The gap has remained high from January through to May 2016 where it currently stands at 11.00%, with the average first-home buyer loan being $326,400 and the average non first home buyer loan being $362,300.

The widening gap in loan values between these two groups suggests that first home buyers are being squeezed out of the property market, despite historically low rates.

Mr Cooke says first home buyers shouldn’t try to time the market and when deciding whether or not it’s the right time to buy, borrowers need to evaluate their personal and financial situation.

“Step back and reflect on your readiness to buy a home both emotionally and financially. This means reviewing your lifestyle, conducting a financial health check and identifying your homeownership strategy.

“For instance, you may want to think about your job security before you apply for a home loan as most lenders prefer that you’ve been in your current job for at least 12 months, as this shows that you have a stable income source to service your repayments,” he says.

With the new record low cash rate, and some experts tipping that it may dip further, borrowers are reminded not to take on more debt than they can afford.

“Don’t be deceived by low interest rates alone; as with any financial decision, taking a considered approach is key,” he says.

Here’s what our RBA expert panel had to say:

Jordan Eliseo, ABC Bullion (Cut): "It's a close call but we think the RBA will cut next week - signifying their intention to arrest the decline in inflationary pressure, which is widespread across the economy today."

Shane Oliver, AMP Capital (Cut): "June quarter inflation data was not low enough to make an RBA rate cut certain, particularly given that recent economic data has been reasonably good. However, on balance we expect that the RBA will move again to help ensure that inflation expectations do not become entrenched below 2% as has been the case in several other countries, so that there is reasonable confidence that inflation will move back into the target zone in a reasonable time frame and to head off a rebound in the $A that will likely follow if it doesn’t cut again."

Dr John Hewson, ANU (Hold): "They will wait and see low inflation number confirmed."

Peter Munckton, Bank of Queensland (Hold): " The RBA are happy with current level of rates." Steven Pasas, Bank Of Sydney (Hold): "CPI came in higher than expected."

David Bassanese, BetaShares (Cut): "Annual underlying inflation has been confirmed as running 0.5% lower than the RBA expected 6 months ago."

Kishti Sen on behalf Richard Robinson, BIS Shrapnel (Hold): "No need to cut as economic growth is good, unemployment rate is stable and CPI likely to rise over next year as petrol prices rise. The RBA also needs to keep some policy bullets up its sleeve for when economy slows in the wake of coming residential downturn." Michael Blythe, CBA (Cut): "Low inflation."

Michael Blythe, CBA (Cut): "Low inflation."

Dr Andrew Wilson, Domain Group (Hold): "Inflation low but steady and other economic indicators slightly more positive recently - will likely keep powder dry but still a solid case for a cut." Scott Morgan, Greater Bank (Hold): "The evidence for a rate cut is not compelling enough at this stage. A rate change is unlikely to fix the factors influencing low inflation. In some respects, low inflation is a global issue. To pull the trigger on a rate cut now is wasted ammunition." Dr Mark Brimble, Griffith University (Cut): "With inflation remained well below the RBA's target range, a building range of

Scott Morgan, Greater Bank (Hold): "The evidence for a rate cut is not compelling enough at this stage. A rate change is unlikely to fix the factors influencing low inflation. In some respects, low inflation is a global issue. To pull the trigger on a rate cut now is wasted ammunition."

Dr Mark Brimble, Griffith University (Cut): "With inflation remained well below the RBA's target range, a building range of head winds (including the expected large scale job losses from heavy manufacturing next year and a stubborn currency) together with APRA's intervention in the credit markets beginning to impact, the RBA has a close call to make, but is likely to want to get ahead of the market and cut rates to offer further support to the economy."

Atul Narang, HashChing (Cut): "The annual inflation is at just 1 per cent, the weakest annual rise since 1999. It is well below RBA's target range of 2-3 percent so there is a strong chance of a rate cut. RBA's expectation that underlying inflation will be below 2-3 percent range until mid 2018 is based on the assumption that interest rates would fall to 1.5 percent."

Peter Haller, Heritage Bank (Hold): "The inflation rate is sufficiently high to permit the RBA to stay on hold for now."

Shane Garrett, HIA (Cut): "Inflation is at a low level, giving the RBA more room for flexibility on rates."

Paul Bloxham, HSBC (Cut): "Inflation is too low."

Alex Joiner, IFM Investors (Cut): "Inflation remains consistent with further easing, the question of timing is still open and the RBA may choose to delay until later in the year given the growth outlook has not deteriorated materially as yet."

Robert Montgomery, Infrastructure Partnerships Australia (Cut): "The RBA will be hesitant to push the cash rate lower than it already is, however the June quarter inflation figures are well below the RBA’s target band of 2-3%, making an August rate cut likely."

Michael Witts, ING Direct (Cut): "The inflation print and the slightly weaker domestic economy together with the higher AUD provides scope for the RBA to adjust the cash rate."

Leanne Pilkington, Laing+Simmons (Cut): "It’s a line-ball decision that really could go either way. In the end, with inflation at its weakest in nearly 20 years, we believe the RBA will move to drop the cash rate."

Nicholas Gruen, Lateral Economics (Hold): "It's consistent with its previous hesitancy to cut even in the presence of its own forecasts of inadequate growth."

Lynne Jordan, Liberty (Cut): "The Reserve Bank’s cash rate decision hinges on inflation, housing and labour market data – and, unfortunately, these indicators are just not leaning in the right direction to constitute a hold. The labour market has lost momentum, low wage growth is impacting consumer spending and, just this week, we’ve seen another disappointing report on inflation. RBA action and a rate cut to a new record low, is definitely on the cards in the not too distant future."

Grant Harrod, LJ Hooker (Cut): "The growth of house prices is moderating. Added to this, inflation is at very low levels and concerns around the global economy should see the RBA cut the cash rate at its August meeting."

Stephen Koukoulas, Market Economics (Cut): " Low inflation and unemployment is too high."

John Caelli, ME (Cut): "Employment data remains soft and inflation remains well below the 2-3% desired band. The Australian dollar is also stronger than what the RBA would like."

Mark Crosby, Melbourne Business School (Hold): "While local inflation remains low the strongest driver of rate changes should remain changes to major central bank settings in coming months."

Emily Dabbs, Moody's Analytics (Cut): "Inflation data for the June quarter indicates that price pressures remain weak. The RBA preferred measure of inflation remains below its 2% to 3% target range."

Jessica Darnbrough, Mortgage Choice (Cut): "The latest inflation data was in line with expectations, but low by historical standards. I believe this will provide the Reserve Bank with the incentive they need to cut the cash rate for the second time this year."

Christopher Schade, MyState Bank (Hold): "Economic data has if anything been a little stronger than expected in recent times and overall activity remains OK. While inflation remains low, the labour market appears to be holding up well as does the housing market. These were the three key variables called out by the RBA as most important for their next rate decision in the minutes of the July Board meeting. On balance, these variables suggest the RBA will leave rates on hold, but retain an easing bias as it takes further time to see how the economy develops. That said, it will be a close call."

Saul Eslake, Economist (Hold): "Because Q2 inflation wasn't materially lower than the RBA had anticipated when it revised its forecasts after the Q1 result (the revision which prompted the most recent rate cut in May), and because other data released since the July Board meeting haven't warranted any downward revisions to the RBA's assessment of the outlook for economic growth. There are downside risks to the outlook for growth and inflation, but the RBA would be better advised holding what "firepower" it still has for a time when the case for using it is stronger." Alan Oster, Nab (Hold): "It’s line ball decision but

Alan Oster, Nab (Hold): "It’s line ball decision but economy in non mining still doing well as is the labour market. Inflation remains low but no urgency to cut unlike May."

Jonathan Chancellor, Property Observer (Hold): "The RBA likes to set its own agenda, not follow the herd mentality."

Matthew Peter, QIC (Cut): "The Q2 inflation outturn is consistent with RBA forecasts, which sees inflation remaining below the target band for an extended period. Risks around the flow-on effect of BREXIT, potential slowdown in China, threat to international trade agreements and geopolitical risks pose sufficient reasons for the RBA to cut." Noel Whittaker , QUT (Hold): "No urgent need to drop."

Christine Williams, Smarter Property Investing Pty Ltd (Hold): "Stable employment market, confirmation of government, and stabilised growth in the overall Australian market."

Janu Chan, St.George Bank (Hold): "Inflation is very low, but it is in line with expectations. If they wanted to follow up the May rate cut with another, they would have done so in June or provided a stronger indication that they were close to cutting. The low inflation outlook keeps alive the chances of a rate cut this year, but given recent RBA commentary, they do not seem to be in a position to lower rates just yet. " Steven Milch, Suncorp (Cut): "Persistently below target inflation." Scott Haslem, UBS (Cut): "The issue for the RBA is whether Q2's 'in line' inflation is low enough to out-work the 'implied' 25bp cut in their May SoMP forecasts, or whether the post-UK-leave resilience of both financial markets & global

Steven Milch, Suncorp (Cut): "Persistently below target inflation." Scott Haslem, UBS (Cut): "The issue for the RBA is whether Q2's 'in line' inflation is low enough to out-work the 'implied' 25bp cut in their May SoMP forecasts, or whether the post-UK-leave resilience of both financial markets & global confidence, and the strong

Ken, Sayer (Hold): "We expect a drop in Sep 2016." Christine Williams, Smarter Property Investing Pty Ltd (Hold): "Stable employment market, confirmation of government, and stabilised growth in the overall Australian market."

Janu Chan, St.George Bank (Hold): "Inflation is very low, but it is in line with expectations. If they wanted to follow up the May rate cut with another, they would have done so in June or provided a stronger indication that they were close to cutting. The low inflation outlook keeps alive the chances of a rate cut this year, but given recent RBA commentary, they do not seem to be in a position to lower rates just yet. "

Steven Milch, Suncorp (Cut): "Persistently below target inflation." Scott Haslem, UBS (Cut): "The issue for the RBA is whether Q2's 'in line' inflation is low enough to out-work the 'implied' 25bp cut in their May SoMP forecasts, or whether the post-UK-leave resilience of both financial markets & global confidence, and the strong

Angus Raine, Raine & Horne (Hold): "The recent Federal election wait and see approach."

Ken, Sayer (Hold): "We expect a drop in Sep 2016."

Christine Williams, Smarter Property Investing Pty Ltd (Hold): "Stable employment market, confirmation of government, and stabilised growth in the overall Australian market."

Janu Chan, St.George Bank (Hold): "Inflation is very low, but it is in line with expectations. If they wanted to follow up the May rate cut with another, they would have done so in June or provided a stronger indication that they were close to cutting. The low inflation outlook keeps alive the chances of a rate cut this year, but given recent RBA commentary, they do not seem to be in a position to lower rates just yet. "

Steven Milch, Suncorp (Cut): "Persistently below target inflation."

Scott Haslem, UBS (Cut): "The issue for the RBA is whether Q2's 'in line' inflation is low enough to out-work the 'implied' 25bp cut in their May SoMP forecasts, or whether the post-UK-leave resilience of both financial markets & global confidence, and the strong dataflow in the US & domestically, leaves the RBA drifting away from their clearer easing bias at the July meeting, back to their 'neutral' post May cut stance. On balance, we believe Q2's CPI is enough to get the RBA across the line for a (final) cut in August, but the lack of downward surprise, & better recent data, makes this a close call."

Nicki Hutley, Urbis (Cut): "Inflation is significantly below the Bank's target."

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Disclaimer

The information in this release is accurate as of the date published, but rates, fees and other product features may have changed. Please see updated product information on finder.com.au's review pages for the current correct values.

About finder.com.au:

finder.com.au is one of Australia’s biggest comparison websites and has helped over 4.8 million Australians find better credit cards, home loans, life insurance, shopping deals and more since 2006. finder.com.au compares 250 credit and debit cards from 31 providers, over 300 home loan products, and information from 13 life insurance providers as well as online shopping promo codes, mobile phone plans, travel insurance and more. One Australian every five minutes is using finder.com.au or creditcardfinder.com.au to find better (Source: Google Analytics).

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