Homeowners holding onto rate cut windfall

by Adam Smith10 May 2012

Retailers and home vendors are unlikely to see any joy from May’s interest rate cut, with the majority of mortgage holders planning to bank the extra money.

A new survey from Loan Market has found 57% of home owners are planning to use May’s RBA rate cut and the ensuing cuts from lenders to boost their home loan repayments. Only 2% of the survey’s respondents said they would be spending the extra cash from the rate reductions.

A Loan Market spokesperson said the rate cut had delivered some breathing space to mortgage holders, in spite of lenders holding onto some of the Reserve Bank decrease.
“The Reserve Bank of Australia reducing the cash rate this month by 50bps to 3.75% was a welcome relief to borrowers even though most banks have not passed on the full rate cut,” he said.

But the majority of consumers would prefer to hold onto the money from the cut rather than splash out on purchases, with home loan repayments becoming easier. Even with lenders failing to pass on the full 50bps, the Loan Market spokesman said homeowners were set to make more progress on paying off their mortgages.

“For consumers who have grown accustomed to conditions to make a repayment at a certain dollar value, a significant savings in time and money can be made if those consumers continue to pay the same amount at the lower interest rates,” the spokesman said.

Savings proved another popular option for homeowners receiving a rate cut windfall, with 21% saying they would increase their savings rate. Twenty per cent said they would use the opportunity to look into refinancing.

The Loan Market spokesperson predicted that further good news could be delivered to consumers in the months ahead. Despite the RBA’s drastic move, he said the Central Bank could further ease rates to revive retail spending and housing demand.

“Another rate cut is on the cards for June with continuing concern about the economic situation in Europe,” he said.