RBA cuts interest rate for first time in almost three years

The RBA has slashed interest rates in the first cash rate move in almost three years.

The move by the RBA to cut rates to 1.25% was widely expected, and no doubt the focus will now turn to mortgage rates; how low will they go?

Mortgage rates for owner occupiers are already around the lowest level since the 1960s and lenders are generally expected to pass on most, if not all of the cash rate cut to mortgage interest rates.

Lower mortgage rates, together with the likelihood of lower borrower serviceability assessments if APRA delivers on a relaxation to the base serviceability rate later this month, as well as renewed confidence following the federal election, are likely to see an improvement in housing market activity.

However, with credit policies remaining tight, the stimulus of lower rates isn't likely to be as effective in kickstarting the housing market as what we have seen in the past.

Borrowers are facing much closer scrutiny on their income and expenses as lenders become less reliant on HEM (Household Expenditure Measure) benchmarks, and comprehensive credit reporting is providing lenders with greater transparency around borrower debt levels and credit standing.

Overall, the latest rate cuts together with lower serviceability assessments for borrowers and greater confidence following the federal election should help to support an earlier than expected trough in housing values, but we aren't expecting a rapid reversal in house price declines due to ongoing tight credit policies and, more broadly, economic uncertainty as global trade tensions escalate.

Get stories like this in our newsletters.