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The Reserve Bank cuts the cash rate to 1%

Posted: 2 July 2019 2:30 pm

Silhouette of a man standing in front of a graph showing a downward trend.

Mortgage interest rates near 3.00% look to be the new normal as the cash rate falls even further.

The Reserve Bank (RBA) has today cut the cash rate by a further 25 basis points down to the historic low of 1.00%.

This is the second cut in a row after the RBA lowered the cash rate to 1.25% in June, the first time it had touched the rate since August 2016.

68% of the economic experts in Finder's RBA survey predicted this month's cash rate cut.

In a statement accompanying the decision, Reserve Bank governor Philip Lowe said "Conditions in most housing markets remain soft, although there are some tentative signs that prices are now stabilising in Sydney and Melbourne... Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality."

But the decision is based on many economic factors beyond the housing market.

"The decision to cut interest rates is an attempt from the RBA to support the economy; the decision has very little to do with housing market conditions.," said CoreLogic research analyst Cameron Kusher. "In fact, the ongoing slowing of the rate of decline in dwelling values throughout 2019 and the recent uptick in Sydney and Melbourne dwelling values, would likely have reduced concerns of further wealth erosion from housing."

The RBA cash rate affects variable home loan interest rates. While lenders aren't obligated to pass on the full (or any) cut, a drop in the cash rate is usually swiftly followed by lower home loan rates.

Last month's cut saw a flurry of downward rate movements, with more than 23 lenders passing on some or all of the cut. This included all of Australia's Big Four banks.

Last month not all lenders passed on the full 25 basis point cut (although many did) and some held off on implementing the cut for a week or two. It's possible that lenders may decide to keep their current mortgage rates in place (and keep interest rates on savings accounts higher).

What does a 25 basis point cut mean for borrowers?

Let's take one of the more competitive variable interest rates as an example. Say your current interest rate is 3.34% and your lender passes on the full cut. This means your rate would fall to 3.09%.

If you'd borrowed $400,000 over 30 years, this rate cut would lower your repayments:

  • Monthly repayments at 3.34% = $1,760
  • Monthly repayments at 3.09% = $1,705

This amounts to a monthly saving of $55 or $660 a year.

But it's important to keep in mind that your lender may not pass on the rate cut. Or it might lower some of its rates but not others. If you're on a fixed rate you also won't benefit from the cut because you've elected to set your rate at a specific amount.

My lender hasn't changed its rates yet, what should I do?

Your first step is to check with your lender. It may announce a decision within a few days of the RBA's rate cut.

You should also look at the current mortgage rate and see how it compares to other rates on the market. You might be surprised.

If your lender doesn't pass on the cut then you have no reason to stick with them. While refinancing a home loan requires some comparison, research and a new application, the savings could quickly add up.

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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Maximum Insured LVR Amount Saved Short Description
St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)
$0 p.a.
Up to $4,000 refinance cashback. A competitive variable rate loan from St.George. Refinancers borrowing $250,000 or more can get $4,000 cashback (Other terms, conditions and exclusions apply).
UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate
$0 p.a.
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)
$8 monthly ($96 p.a.)
Up to $3,000 refinance cashback.
A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply. Low Rate Home Loan with Offset - LVR Under 60% (Owner Occupier, P&I)
$0 p.a.
A competitive rate with no application or ongoing fee. This loan is not available for construction.
Athena Celebrate Home Loan - 60% LVR  Owner Occupier, P&I
$0 p.a.
Owner occupiers with 40% deposits or equity can get this competitive variable rate loan. No upfront or ongoing fees.

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