RBA rate cut: Winners and surprise losers from historic drop
Homeowners and others will get relief from today’s rate cut but it will also strike a blow to some already struggling sectors.
The Reserve Bank of Australia’s decision to pull the trigger on an interest-rate cut will ripple across the entire economy – with clear winner and losers.
RBA governor Michele Bullock announced today that the cash rate would be trimmed by 0.25 per cent, pushing it down to 4.1 per cent. The cut has broken a cycle of 13 previous rate hikes that started in mid-2022.
It’s a decision that was widely expected because of falling inflation and a weakening economic outlook.
A number of groups are set to benefit, while the reduced interest will be a setback for others:
WINNER: HOMEOWNERS
Most homeowners will be able to save about $100 a month once their bank passes the interest rate cuts on. But the savings could be much higher in markets with higher debt levels.
PropTrack research showed monthly mortgage repayments could be slashed by anywhere from $30 to $590 a month across more than 600 suburbs and towns in Victoria.
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Homeowners could save up to $400 a month in some Brisbane suburbs after just one rate cut, according to the same analysis. Sydney house owners would save an average of nearly $200 a month.
REA Group economist Eleanor Creagh said the rate cut would also “reverse” the current housing slump in Australia’s biggest capitals.
LOSER: FIRST-HOME BUYERS
First-time buyers will benefit from an interest-rate cut with improved borrowing power, but any increase in the amounts they can spend on housing will likely be offset by rises in property prices.
Dr Diaswati Mardiasmo, the chief economist at PRD Real Estate, said interest rate cuts would drive up competition in the housing market, putting pressure on buyers to pay more.
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“The danger for first-home buyers is that they’re the baby in this environment,” Dr Mardiasmo said.
“A lot of investors and upgraders have been waiting in the wings for a rate cut and there will be a frenzy of buying activity that could price out a lot of first-home buyers.
“Interest rate cuts tend to stimulate demand a lot more in the most affordable price brackets, which is usually where first-home buyers are.”
Dr Mardiasmo said a first-home buyer with a $600,000 budget would probably only be able to increase their budget by about $10,000-$20,000 with a rate cut, but price rises would be higher.
“The problem for first-home buyers is that even though they can borrow a little bit more, it’s no advantage because everyone else can borrow more too.”
WINNER: ANTHONY ALBANESE
The crucial cash rate decision is expected to give Anthony Albanese a springboard to kick off his re-election campaign.
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The Prime Minister is widely expected to call a federal election in the coming weeks, riding the momentum of the long-awaited interest rate cut.
LOSER: SAVERS
The RBA’s decision means that banks will likely drop rates on their savings accounts for the time being. This will hurt those with large savings balances – often retirees living off savings.
WINNER: RENTERS
Investment activity has already been picking up ahead of today’s RBA announcement and the gradual increase in rental stock has helped ease pressure on tenants to pay more.
Better returns for landlords would be another help for tenants, with LJ Hooker head of Research Mathew Tiller noting it could slow the rate of rental increases.
“There will be less pressure on landlords, reducing the need for rental hikes,” he said.
LOSER: THE AUSSIE DOLLAR
A rate cut will likely weaken the Australian dollar, making imports more expensive.
Lower interest rates reduce the appeal of holding AUD-denominated assets like government bonds and term deposits. As these assets become less attractive, foreign investors may move their money to countries offering higher returns, leading to a decline in demand for the Aussie dollar.
WINNER: HOME BUILDERS
REA Group economist Angus Moore said rate cuts have historically improved the margins for home builders, making it easier for them to get projects off the ground.
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An increase in home building activity is sorely needed for the government to reach its housing targets. Greater levels of housing would also put a cap on home price rises down the line.
WINNER: DOWNSIZERS
First-home buyers will suffer from more competition, but greater demand for housing is an ideal scenario for someone planning to sell a larger house and downgrade to a cheaper one.
“Downsizers are one of the biggest winners and they’re a group people often forget about,” Dr Mardiasmo said.
“More competition means they could get a higher price for the home they’re selling, while buying their next home in a much lower price bracket,” she said.
WINNER: RESPONSIBLE MORTGAGE HOLDERS
Canstar research shows if a borrower with a $600,000 debt kept their monthly repayments at the same amount as today they would save as much as $89,143 in interest over the life of their loan. This would help them pay off their loan four years early.
This assumes there are four standard cash rate cuts (CBA and Westpac current forecasts) that are passed on in full.
New research from ING on Tuesday revealed 68 per cent of Australian mortgage holders planned to maintain their current repayment amounts, even after a cut.
Among Aussies who are likely to keep paying off their mortgage with the extra money saved from reduced rates, 56 per cent said they will be putting the funds towards paying down principal, while 43 per cent will be depositing it into their offset account for future access.
LOSER: COMPLACENT HOMEOWNERS
Compare the Market economic director and former Sunrise host David Koch warned that not all lenders would pass on the savings automatically.
“There aren’t any rules to say that banks must pass on cash rate cuts, that’s entirely up to them,” Mr Koch said. “We’re urging homeowners to keep an eye on their bank over the next couple of weeks to see if the change comes through.
“If not, it might be worth phoning a broker to see if they negotiate a better offer for you. Right now, when every dollar counts, Australians can’t afford to be complacent. A better rate could mean a difference of hundreds – if not thousands – over the course of a year.”