Market locks in historic rate cut
A historic rate cut come Tuesday is expected to save thousands for some homeowners, with the market now locking in a fall to 1.25 per cent — and the potential for more to come.
In the past week, the market has dramatically thrown itself behind a drop of 25 basis points, with ASX’s 30 Day Interbank Cash Rate Futures June 2019 contract trading at 98.72 — which it said indicated “a 100 per cent expectation of an interest rate decrease to 1.25 per cent at the next RBA Board meeting”.
According to RateCity, the current lowest home loan rate – for one year fixed – was 2.99 per cent from Greater Bank, while the lowest variable rate was 3.29 per cent from Mortgage House.
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Experts have swung behind a drop, with 32 of the 35 experts in the Finder Cash Rate Survey (91 per cent) now predicting a cut come Tuesday — with 60 per cent expecting it would bottom out at 1 per cent while a third believed it would go 0.75 per cent or even lower.
Finder insights manager Graham Cooke said “we can be fairly certain of the direction the cash rate will take in June — the writing is on the wall”.
But he said the questions that needed answering were “how much will they cut by, and how many cuts will follow this one?”.
Westpac expects three cuts by the end of the calendar year, a view that one in five Finder survey respondents (22 per cent) supported.
According to Finder analysis, just one rate cut passed on could save someone on a $500,000 home loan more than $900 a year.
“This snowballs to an annual saving of more than $2,600 should the three cuts come to fruition, with a reduced average variable rate of 4.16 per cent.”
Finder has been telling borrowers “if you don’t get the full rate cut, vote with your feet” by switching to a different mortgage.
“A lower cash rate will spur even further competition within the market so it is the perfect time to weigh up your options as you have the bargaining power — the best value home loan rates right now start with a ‘3’.”
Griffith University’s Mark Brimble and Noel Whittaker of the Queensland University of Technology were among the minority experts who believed the RBA would hold come Tuesday.
“I am probably wrong but I think dropping would be a very bad policy — hope the bank realises that,” Mr Whittaker said.
Mr Brimble said “bias is clearly to the easing, however the RBA may choose to wait for the new financial year for a range of reasons including the finalisation of the budget bills and how geo-political issues play out on the global stage and markets”.
Nerida Conisbee of the REA Group was among those who’ve now switched to a decrease after holding out for a while.
“I’ve gone against popular opinion and have held off calling a cut until now. I think this month will be it,” she said.
“While there has been a lot of poor economic data coming out, it looked like the RBA were holding on to the low unemployment rate as a sign that things were about to improve. With the unemployment rate ticking up in April, I think this will be enough impetus to make a decision to cut.”
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