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RBA holds rate at 2.50%

By Rick Schafer

by Holly Jones | 02 OCT 2013

On 1 October, 2013, the Reserve Bank of Australia announced cash rates were holding at 2.50%. This means official rates have dropped 2.25% since November 2011.

With rates still low, comparison website suggests there could be an increase of people looking towards a fixed home loan, but warns that not all fixed rates are as low as they could be, and that a further drop in rates could come in November.

“Lenders are continuing to shake up the home loan market by competing harder and cutting their rates. For instance, we’ve seen 44 fixed home loans change their rates in September. The majority of which dropped their rates and out of those by an average of 0.19 percentage points,” says Finder spokesperson Michelle Hutchison.

“Fixed rate reductions can be an indicator that the cash rate will follow so this could be a sign of another rate drop on Melbourne Cup next month.”

The company reported that out of the 44 rate changes monitored by, nine lenders dropped 27 fixed home loans, including Commonwealth Bank, Westpac, Aussie, ME Bank and Newcastle Permanent. The smallest rate drop was by 0.05 percentage points and the biggest cut was by 0.50 percentage points.

However there were also four lenders that increased 17 fixed home loans in September, including Citibank, Commonwealth Bank, eMoney and Homeloans. These home loans increased their fixed rates from 0.05 percentage points up to 0.40 percentage points.

Rate welcomed by real estate agents

The REIA (Real Estate Institute of Australia) has welcomed the holding position, with CEO Amanda Lynch highlighting the importance of the low cash rate to home buyers: “The RBA Board has made a considered and accurate assessment of the property market and we are pleased that media speculation about a housing bubble has been dampened at today’s meeting.” “Nationally, it now takes 28.7% of the median family income to meet average loan repayments.” This positive sentiment is reflected in’s most recent data reports from the Housing Affordability Sentiment Index (HASI).

A positive impact

Alex Parsons, CEO of RateCity said low rates should continue to have a positive impact on borrowers: “Despite no movement to the cash rate today, variable borrowers with a typical $300,000 home loan would be around $600 better off by the end of the year based on the previous two rate cuts in May and August 2013,” says Parsons. “Compared with this time last year, variable borrowers are now paying $171 less per month on average to service the same $300,000 home loan, ” he continued. Parsons commented: “If your home loan rate starts with a 5 then you’re wasting money. Consider switching today – there are 26 variable home loans with rates below the average rate of 5.2 percent, starting from just 4.74 percent. Fixed rates are starting at 4.29 percent for a one year fixed term.”

Building industry suggests further cuts

The Housing Industry Association, who represents the residential building industry, said the decision was ”clearly warranted,” but called for further cuts to boost the construction sector. “If we take a bird’s eye view of the situation, we see growing downside risks to economic growth alongside flagging inflationary pressure,” said HIA Senior Economist, Shane Garrett.

“The Aussie dollar’s strength continues to punish key sectors of the economy. All the while, new home building remains below levels of a decade ago despite record population growth. In these circumstances, another rate reduction today would have been helpful. The cycle of cuts which has taken place over the past two years has been of some benefit to the residential construction industry, with activity starting to lift off very low levels. A reduction in rates today would have been supportive to broadening this recovery.”

Seeking professional advice is always the best approach to making financial changes and decisions. Now could be a good time to talk to your bank, broker or financial advisor to see if you’re in the right position for your circumstances, and check if your bank will be passing on any of the cuts to you.

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