Winners and losers from interest rate cut

The Reserve Bank’s decision to cut interest rates will be welcomed by many Australians — but as always there are winners and losers.

Today’s interest rate cut will be good news for many but there are some key groups, particularly first homebuyers, who will be disadvantaged.

The Reserve Bank of Australia announced this afternoon that it had cut the interest rate to a historic low of 1.25 per cent.

Deloitte Access Economics partner Chris Richardson said the cut was mostly good news for Australia given how indebted the country is.

“Australians are only second in the world to the Swiss for our debt-to-income ratio,” Mr Richardson said.

“The interest rate cut is more valuable in Australia because we have so many borrowers and lots of them are hurting when it comes to housing repayments.”

Australia’s growing debt levels also mean that the cut is a “more powerful positive” than it used to be in previous years.

“A very large group should be very happy on the back of this,” he said.

However, as in every change, some people will be worse off. Here are the winners and losers from the interest rate cut.

WINNER: BUSINESSES

Lower interest rates mean households with mortgages will have extra money in their pockets and importantly more money to spend in shops.

WINNER: REAL ESTATE AGENTS

Those working in the property market have been doing it tough due to drops in house prices in recent years. The rate cut should help stabilise prices in the market.

Real estate agents and others working in the property industry will likely benefit from the rate cut. Picture: Mike Dugdale

WINNER: EXPORTERS

The rate cut is likely to bring the Australian dollar down and this is actually good news for businesses selling their products overseas including farmers and miners. This is because they will receive Australian dollars when they sell their goods.

WINNER: PROPERTY OWNERS

The rate cut is likely to help stabilise price drops experienced in recent years. If interest rates are too high, house prices tend to be lower because people can’t afford to pay off their loans. When rates drop, people can borrow more and house prices tend to improve.

However, because house prices have been going down, the rate cut probably won’t push prices up but may see them start to stabilise. Mr Richardson said housing affordability was unlikely to shift too much.

LOSER: FIRST HOMEBUYERS

While they will be able to borrow more thanks to lower interest rates, house prices could start to stabilise and this is not great news for homebuyers.

They will also find it harder to save a deposit because banks will likely cut interest rates on savings accounts.

House prices could start to stabilise and this is bad news for first homebuyers. Picture: David Swift.

LOSER: SAVERS

Those who are relying on interest income from savings accounts will be impacted because banks will likely reduce interest payments.

NEUTRAL: RETIREES

Unless they are relying only on income from savings accounts, retirees should not be heavily hit. Mr Richardson said this was because retirees usually had superannuation plus other investments in shares and property, which will be positively impacted.

NEUTRAL: CREDIT CARD HOLDERS

Don’t expect the rate cut to lower your credit card interest rates. These are not linked to Reserve Bank rates.