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Senior stakeholders in the broking industry have reacted to the Reserve Bank’s first monetary policy adjustment in almost three years.
The Reserve Bank of Australia (RBA) cut the official cash rate to 1.25 per cent, following its monetary policy board meeting yesterday (4 June).
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The central bank’s decision was predicted by most industry pundits, with comparison website Finder.com.au’s RBA Cash Rate Survey reporting that of the 35 market analysts and economists surveyed, 32 (91 per cent) predicted a cut.
The shift in expectations followed RBA governor Philip Lowe’s concession earlier this month that the board would “consider the case” for a rate cut in June, in light of flat inflation growth, subdued wage growth and weaker than expected labour market conditions.
Most analysts are expecting the RBA’s June decision to be the first of several cash rate reductions in 2019.
The majority (59 per cent) of analysts surveyed by Finder have predicted two cuts this year, while 22 per cent forecasted three cuts before December.
Broking industry reacts
Senior stakeholders in the third-party mortgage industry have reacted to the RBA rate cut news with mixed sentiment.
Mortgage Choice CEO Susan Mitchell said the rate cut is welcome news for the property market.
“[The] cash rate cut is good news for the Australian property market, which could see a boost from lower interest rates,” she said.
“According to the latest CoreLogic Hedonic Home Value Index, national dwelling values fell 0.4 per cent in April and 7.3 per cent annually.
“The Reserve Bank would be acutely aware that any cuts to the cash rate may serve to bolster overall activity in the property market, and while I do not see dwelling values rebounding to their 2017 peak any time soon, monetary policy stimulus could help put a floor under falling dwelling values.”
Executive chairman of Loan Market Group Sam White agreed, adding that the rate cut would provide prospective home buyers with further impetus to enter the property market.
“The record-low interest rate creates real opportunity for first home buyers, investors and refinancers, with house prices in Australia’s two major cities now at the same level they were in late 2015 to early 2016,” he said.
“This, coupled with the Coalition government’s plan to help first home buyers save for a deposit, whereby FHBs would only need a 5 per cent deposit, brings overdue relief to those wanting to enter the housing market.”
Mr White also observed that the rate cut provides mortgage brokers with an opportunity to capitalise on any potential increase in demand for housing credit.
“Brokers have never been more important to everyday Aussies looking to enter the housing market, refinance or invest,” he said.
However, Aussie Home Loans’ chief customer officer, David Smith, said that while the rate cuts may be good news for mortgage holders, they’re also a sign of a slowing economy.
“Australia has enjoyed a run of almost 30 years of unbroken economic growth, but there are signs the economy is slowing,” he said.
“A major concern for the RBA is that inflation recently fell to 1.3 per cent, well below its target range of 2 to 3 per cent.
“We believe the RBA is still confident our economy is on track to continue growing this year; however, it’s not taking any chances.”
Mr Smith added: “By trimming the cash rate, the RBA is hoping to give the economy an extra boost to keep it ticking along.”
Managing director of the Finance Brokers Association of Australia (FBAA) Peter White encouraged borrowers to resist the urge to spend any savings they incur from lower mortgage rates.
“There is a temptation to spend the windfall, including tax cuts and wage growth, but I don’t think that’s the best strategy,” he said.
“Economic growth is flat, debt levels are high, the housing market is still declining and unemployment is static. When you add global factors into the mix, there is cause for caution.
“Borrowers will effectively be saving for a rainy day if they keep their mortgage repayments as high as they can afford. It’s better to have payments in reserve if conditions deteriorate further.”
[Related: Pundits fear banks won’t play ball if RBA cuts]
