October cash rate announced

The RBA has confirmed a cut to the official cash rate – it is the third cut since June.

Australia's official cash rate is now at a record low of .75%

The decision, announced by RBA governor Phillip Lowe on 1 October, followed muted economic performance across key metrics, including employment, inflation and wage growth.

While there are obvious benefits for borrowers, the decision is good news for brokers too, according to Loan Market executive chairman Sam White.

“With the RBA’s move today, debt serviceability has never been better in Australia,” he said.

“Over the last quarter, brokers have been in-demand. Today, the industry has the opportunity to show the marketplace, regulators and Canberra that it can deliver the great customer outcomes for their clients’ short, medium and long-term objectives while managing higher volumes,” he added.

The cut comes despite some strength returning to the property market – a trend White said has been restricted due to overzealous regulation around serviceability.

“Lenders have reacted very differently to interpreting messages that have emerged from the Hayne royal commission and as a consequence, we are seeing very different outcomes for our customers. For example, some of our customers will qualify for all of our lenders and some will only qualify for one lender,” said White.

However, according to Tim Lawless, head of research at CoreLogic, the combination of lower rates and a “subtle loosening in credit policy” have driven a property value recovery of 1.7% of the 8.4% peak to trough decline recorded to date.

The CoreLogic Home Value Index of national home prices rose by 0.9% over the month of September, the biggest increase since March 2017. Capital city home prices rose by 1.1%, the biggest lift in almost three years. Regional home prices increased by 0.1% over the month.

Lawless said the rebound in housing conditions should help to support an improvement in economic conditions as higher housing prices translate to "a wealthier and more confident household sector who will hopefully be inclined to spend more".  Stronger housing conditions should also support the residential construction sector where approvals dropped through the housing downturn.

However, he issued caution around total household debt levels.

"Although the housing recovery is likely to add to Australia’s economic momentum, it comes amidst record levels of household debt and ongoing affordability challenges.  There is a risk that lower interest rates could fuel a further rise in household indebtedness as housing credit picks up and investors once again become more active, while higher housing prices are likely to curb participation from first home buyers despite the lower cost of debt," he said.

Loan rates

The news is expected to pave the way for a surge in sub-3% mortgages.

Even before the cut, comparison site InfoChoice counted 145 lenders advertising sub-3% mortgages and two lenders with comparison rates under 3%.

Meanwhile, Canstar expects the October decision to heighten market competition over the coming weeks.

“A Reserve Bank cut means a lower home loan rate for most borrowers, likely sparking cuts of somewhere between .15% and .20%. For most borrowers a cash rate cut would see them finally get their rate below 4%, with the lowest rates in the market likely to come down to between 2.74% and 2.84%. A cut is good news for borrowers, but they have to push their bank for more,” said Canstar’s Steve Mickenbecker

Year to date, Canstar has counted 733 cuts to variable interest rates, with 1,822 cuts to fixed rates. The average variable rate cut since the start of the year is .46%, while the average fixed rate cut is .64%.

Looking ahead, a poll of 35 economists conducted by Reuters predicted interest rates of .5% “by early 2020”.