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Brokers have welcomed the Reserve Bank’s latest rate reduction and are confident it will lead to greater borrowing activity.
Yesterday the RBA delivered the widely anticipated 100 basis point cut to the cash rate, bringing the official interest rate to a 45 year low of 3.25 per cent.
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A wave of negative reports and results combined with rapidly deteriorating global economic conditions since the RBA met in December made a substantial February cut a near certainty.
The industry now hopes low borrowing costs combined with lower house prices and government incentives will drive an upswing in borrower activity.
Phil Naylor, MFAA CEO, said 2009’s first rate cut would have two key flow-on effects.
“First of all it will be instrumental in bringing first home buyers into the market. Falling house prices as well as the first home owner grant boost are already driving interest from this segment and I would expect this trend to continue as a result of even lower borrowing costs.”
“I would also expect the reduction to stimulate some upward growth in overall housing finance,” he said.
Matt Derham, home loan planner with Property Planning Australia, told Mortgage Business the rate cut could also fuel refinancing activity.
“Depending on how the different lenders react, this month’s reduction might also feed refinancing activity, if borrowers look to secure a lower rate,” he said.
Smartline’s Kevin Lee however was less optimistic; he expected the deteriorating economy to hold back any pick up in activity.
“I believe there’s still a lot more pain to come,” he said.
“Unfortunately the RBA took the soft option by reducing rates by 100 basis points. A more substantial reduction of 150 to 200 basis points would have really kick started the economy.”
