Borrowers with a $500,000 home loan could potentially save over $2000 per year
Sentiment across the board is expecting the Reserve Bank of Australia to cut rates for the first time since August 2016 today.
According to Finder’s monthly survey, 32 out of 35 economists expect the Reserve Bank to cut the cash rate at their next board meeting, with the forecasted 25-basis point decrease likely to bring the cash rate down to a new historical low of 1.25%.
When asked how low the cash rate will sink before it rises again, almost 17% of all experts who predicted a cut indicated a 1% bottom and 10.3% of them predict a bottom of .75% or lower.
“We can be fairly certain of the direction the cash rate will take in June – the writing is on the wall. However, the questions we need to ask are: how much will they cut by, and how many cuts will follow this one?” Finder insights manager Graham Cooke said in a statement.
According to 22% of the survey respondents, at least one further cut will occur over the next few months, while 59% predict two cuts this year. Westpac forecasts three cuts by December — touting August and November as the most likely months.
Into their own hands
Borrowers with a $500,000 home loan could pocket over $900 per year with just one rate cut. Should the three cuts happen, they could get an annual saving of more than $2,600.
“For first-time buyers with a deposit, access to more affordable finance could be their ticket into the property market. A falling cash rate does generally lead to cheaper repayments for existing borrowers,” Cooke said.
However, Cooke added that an RBA cut by 25 basis points doesn’t necessarily mean banks will pass on the rate cut in full. “Just three of the four big banks passed on the full cut last time around – and waited up to 20 days to do so – therefore borrowers should brace themselves and put matters into their own hands,” he said.
Flawed accuracy
A recent Finder analysis revealed that the average variable home loan rate follows the cash rate with only 92% accuracy since 1990 compared to the average online savings account rate which mimics cash rate changes with 99% accuracy.
“Banks may be quicker to shave the interest off your savings than they are to take it off your home loan,” Cooke said. “If you don’t get the full rate cut, vote with your feet.
