RBA Update August 2016

By Matthew Kenworthy | Reserve Bank News

In an announcement many predicted the Reserve Bank has cut the cash rate.

Just 3 months after their last rate change they have announced a 25 basis point cut. This reduces the cash rate to a new record low of 1.50%

What Comments Did They Make?

Supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments.

These measures refer to changes to lending policy we’ve discussed previously. This includes:

  • Making it more difficult and expensive to borrow for property investment.
  • Increased deposit & documentation requirements for foreign borrowers.
  • Decreasing the borrowing capacity of those receiving uncertain income such as overtime and commission payments.

Growth in lending for housing purposes has slowed a little this year. All this suggests that the likelihood of lower interest rates exacerbating risks in the housing market has diminished.

Whilst the rate cut is good news for existing borrowers, it won’t affect the new borrowers. This is because most lenders use a rate higher than the borrower rate to assess loan applications. This helps ensure borrowers can afford the repayments when interest rates do rise.

Full notes on the Reserve Bank decision are available from the RBA Media Release

Will The Banks Pass It On?

This is the most interesting question. Will the banks pass on the rate cut or will they keep some of it to themselves?

Each lender should make an announcement over the next two weeks about:

  • How much of the rate cut they are passing on to borrowers.
  • When the rate change will take effect.

It is important to remember that fixed rates and variable rates are priced differently. Todays change to the cash rate does not mean that advertised fixed rates will change.

Check out our August Variable Rate Changes Summary to find out how each lender responds. We will post details on what each lender has passed on when they announce their changes.

About the Author

Matthew Kenworthy is a specialist in all aspects of Residential & Commercial Finance. He can assist all borrowers from First Home Buyers to Property Investors with Large Portfolios.