In a move that would have seemed impossible just months ago, the Reserve Bank of Australia (RBA) has cut the nation's official cash rate from 0.25% to a new record low of 0.10%.
As already reported, today’s rate cut will only have a material impact on Australia's mortgage market if the banks opt to pass the savings through to their customers.
According to CreditorWatch chief economist Harley Dale, such a lowering of fixed rate mortgages could provide a “powerful charge” to the country's economic recovery.
However, Dale also emphasised that the RBA is now “out of ammunition” in terms of using the cash rate as a tool in its COVID-19 recovery arsenal.
“Any further support the Australian economy requires will have to come from fiscal policy and quantitative easing, “ he added.
An aggregator head provided further colour around the significance of the RBA's November decision, saying the rate reduction is somewhat irrelevant to the mortgage and finance broking industry.
Loan Market executive chairman Sam White clarified that while he welcomes today's cut, and understands the RBA is doing all it can to support the economy’s recovery from the pandemic, he doesn’t believe the move will have a significant impact on the broking industry; rather, the sector’s primary issue remains the bottlenecks in the home loan application process.
“Before today, borrowers with a mortgage of $400,000 were paying about $300 less a month on a 25-year loan than they were 18 months ago [so] we probably don’t need a rate cut at this point in time,” White said.
“Faster and more certain loan approval processes, especially amongst the big banks, would do more to drive applications than a cash rate cut.”
Yet White predicts that, on the back of today’s cash rate reduction, lenders will focus their efforts primarily on becoming "ultra-competitive" with rates in a bid to win new borrowers to their brands; he hopes he's wrong.
“There’ll be a lot of jostling for the lowest product. But, we already have historic levels of affordability and have had for some time," White explained.
“Lenders would do themselves a favour if they placed the same level of importance on streamlining their application processes as they [do] interest rates."