The central bank has cut Australia's cash rate from 0.25% to a new record low of 0.10%.
The decision from the Reserve Bank (RBA) to cut the rate by 15 basis points was almost universally expected by economists, with the market pricing in an 84% chance of a cut.
Recent comments from RBA Governor Phillip Lowe set the scene for a cut, after he suggested one would be more effective now as the economy was opening up, instead of at the height of the pandemic when restrictions were in place.
Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
Melbourne Cup Day is somewhat of a cash rate change tradition for the central bank, as it gives time for savings to flow through to households and retailers before Christmas.
The RBA also announced a reduction in the interest rate on new drawings under the Term Funding Facility to 0.1%, as well as the purchase of $100 billion of government bonds.
The central bank said the Board was committed to supporting the recovery of the Australian economy from the pandemic.
"With Australia facing a period of high unemployment, the Reserve Bank is committed to doing what it can to support the creation of jobs," it said.
"Encouragingly, the recent economic data have been a bit better than expected and the near-term outlook is better than it was three months ago.
"Even so, the recovery is still expected to be bumpy and drawn out and the outlook remains dependent on successful containment of the virus."
The RBA said it has put the high rate of unemployment as an important national priority.
"Today's policy package, together with the earlier measures by the RBA, will help in this effort.
"The RBA's response is complementary to the significant steps taken by the Australian Government, including in the recent budget, to support jobs and economic growth."
"Borrowing has never been cheaper"
Mortgage Choice CEO Susan Mitchell said today's decision would come as welcome news to families across the country in the lead up to Christmas, but wasn't sure lenders would pass on the cut.
“Regardless of how much variable rates drop in response to the latest cash rate cut, the reality is that borrowing money has never been cheaper - the home loan market is extremely competitive right now and we’re seeing some fixed rate loans that are cheaper than variable rates," Ms Mitchell said.
"Mortgage Choice home loan approval data shows that the trend towards fixed rates remains strong, with 32% of borrowers choosing to lock in part or all of their rate in October.”
Ms Mitchell said regardless of if lenders passed on the cut, she advised people to ensure you're taking advantage of the competitive market.
"If you’re on a variable interest rate, check to see what rate you’re paying and ask your mortgage broker or lender if they can get you a better deal," she said.
"If your interest rate has dropped and you’re in a position to pay beyond the minimum repayment, I encourage you to keep your repayments at the same level to pay your loan down faster.”
Tim Lawless, Head of research at CoreLogic, said it was highly likely lenders would pass on the cuts.
"If passed on by the banks, which is highly likely, we will see mortgage rates fall further from their already record lows," Mr Lawless said.
"Historically cuts to interest rates have fuelled housing market activity and generally aligned with upwards pressure on dwelling prices.
"With the trend in housing values already rising around most areas of the country, there is a good chance lower rates could see momentum building across the nation’s most valuable asset class."
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
- If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
- What are some credit cards with no annual fee?
- What are the costs of investing in property?
- How the COVID pandemic changed what Australians want in a home
- Citi to leave Australian banking: Credit cards, home loans, savings accounts to go
- Why are home loans rates climbing when the cash rate is still 0.10%?