As the Reserve Bank of Australia (RBA) edges closer to cutting the cash rate, Australian homeowners, property investors, and first-time buyers alike are preparing for potential relief in the form of lower mortgage repayments. With the RBA expected to make this move for the first time since November 2020, the shift marks the beginning of a new phase in the housing market, where securing the best deal from your lender becomes essential.
Mortgage experts anticipate the rate cut will have a significant impact on affordability and market dynamics. Rob Lees, a mortgage broker based in the Blue Mountains, notes that as interest rates decrease, buyers’ borrowing power will increase, and many will be in a stronger position to refinance. “Once rates start to drop, it boosts confidence in the market. People will be able to borrow more and will have more options to refinance,” Lees explains, adding that the expected changes could prompt more listings and activity in the property market.
For those with a standard variable rate mortgage, a full rate cut could lower monthly repayments. For example, repayments on a $500,000, 30-year loan could fall by approximately $80 a month, but Lees cautions that the banks might take time to implement the cut, often delaying adjustments until the next billing cycle.
As the mortgage market enters a more competitive phase, it’s the perfect time to reach out to your broker and ask some critical questions.
1. How Are Banks Responding to the RBA Rate Cut?
Not all banks will react the same way to an RBA rate cut, and some may choose not to pass on the reduction at all. While many lenders are under pressure to share the benefits of lower rates with borrowers, each bank’s strategy will differ. “Banks may adjust their rates by a small amount, leave them unchanged, or pass on the full reduction,” says Lees. “In some cases, they may even offer deeper discounts to attract business.”
Mortgage brokers, like Lees, monitor these shifts closely, helping borrowers take advantage of the most competitive deals available.
2. Is It a Good Time to Buy My First Home?
For first-time buyers, the prospect of lower borrowing costs is tempting, but the market is also likely to see increased competition. Lees explains that while many first homebuyers have struggled in the high-interest environment, lower rates may improve their borrowing capacity. “First-time buyers will have more purchasing power, but this could drive up property prices as more buyers enter the market,” he warns.
He advises potential buyers to consult their mortgage brokers and reassess their borrowing capacity in light of the rate cut.
3. Should I Stay with My Current Lender or Refinance?
The prospect of falling rates typically sparks an uptick in refinancing activity. However, even if a rate cut is on the horizon, it’s important to reassess your current loan and shop around. “Banks will be eager to retain customers, but they also want to attract new business,” says Lees. “Sometimes, it’s worth going back to your lender and requesting a better deal, or having your broker negotiate on your behalf.”
For those with a variable mortgage, refinancing may present an opportunity to secure a better deal with another lender, but Lees recommends checking in with your current bank first to see if they’ll match the offer.
4. Do I Need to Reduce My Repayments?
Even if your mortgage repayments decrease following a rate cut, it may not always be in your best interest to reduce your payments. Lees suggests that borrowers who can afford it might consider maintaining their current repayment amounts. “By keeping the same repayment, you’ll pay off your loan more quickly, which could save you money in the long run,” he advises.
Mortgage brokers can help borrowers calculate how making higher repayments can expedite loan payoff.
5. What About Investment Properties?
For property investors, the rate cut may offer some relief after the strain of high-interest rates. However, investors must ensure that their mortgage is competitive. “Investment rates are typically higher than owner-occupier rates, so it’s crucial to reassess your mortgage and see if there’s a better deal available,” says Lees.
6. How Will Rate Cuts Impact Property Prices?
While it’s difficult to predict with certainty, Lees believes the market will experience some fluctuations as a result of rate cuts. Increased competition from first-time buyers and current homeowners looking to upgrade could place upward pressure on prices. However, more properties on the market could help balance the demand, leading to a new equilibrium in the housing market.
As the RBA prepares to cut rates, now is the ideal time for borrowers to consult their mortgage brokers and ensure they’re getting the best deal possible in this changing market.
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