With the Reserve Bank of Australia (RBA) today announcing the cash rate has been held at its current record low of 0.25%, one mortgage aggregator has underscored the importance of additional stimulus packages from the government in helping the economy rebound from its current slump.
Finsure Group managing director John Kolenda has welcomed reports that the latest package being prepared by Treasurer Josh Frydenberg includes increased grants for new home buyers and renovations for established homes.
According to Kolenda, the significant increase to the first home buyers’ grant was key in buoying the sluggish housing sector during the global financial crisis in 2008. In October of that year, the grant was temporarily doubled from $7,000 to $14,000 for established homes and brought up to $21,000 for new properties.
“That stimulus resulted in an increase of 300,000 inquiries from first home buyers at the time – one of the greatest uptakes in history – which produced a positive flow-on effect for the entire housing market which benefitted the whole economy," Kolenda said.
“I applaud the fact that something similar is being considered to counter the economic impact of COVID-19.”
Effective stimulus is what will enable the RBA to stand firm against moving rates into negative territory while still giving banks the room to lower their individual lending rates, according to the aggregator head.
“Government stimulus is the main weapon to combat the impact of the virus and the more than $200bn committed so far has been crucial in helping the hundreds of thousands who have lost jobs and businesses, and maintain some economic activity,” he said.
“Other measures currently circulating include stamp duty reform, abolishing payroll tax and increasing GST, which could help drive employment and help ease the nation’s debt burden.”
For now, even with the official cash rate on hold, there remains room for certain lenders to drop rates further as they look to win over new business.
“The big four banks have probably exhausted their capacity to cut fixed rates. Now what we’re seeing is challenger banks trying to outbid them to attract new customers,” explained RateCity.com.au research director Sally Tindall.
“As a result, rates could fall a fraction further, but they’re unlikely to fall far.”
Notably, customers have been increasingly gravitating towards fixed rates over the last few months, with CBA recently reported fixing has more than doubled since the start of March for both new and existing customers.