Happy New Year, yes it is February however as this is our first newsletter of 2025 it seems like an appropriate greeting!
And just like that the RBA has dropped the cash rate after thirteen rate increases and fifteen months of keeping them steady at 4.35%.
What happens now?
It is generally anticipated that the banks will pass on the rate reduction, whether they pass on the whole 0.25% or part thereof remains to be seen. Matt Comyn, CEO of the Commonwealth Bank stated that any rate reduction would take up to two weeks before it was passed on to mortgage holders. We would expect that the banks who are passing on the reduction would do so by middle of March 2025.
What does a 0.25% reduction mean to my repayments?
A 0.25% reduction may not seem like a lot, though economists are predicting another two to three cuts this year.
When the RBA cuts interest rates, and this is passed on by the banks, this will mean lower home loan repayments for mortgage holders.
For a 0.25 per cent cut, Canstar has calculated mortgage holders will save the following:
$600,000 loan: $92 per month
$750,000 loan: $115 per month
$1,000,000 loan: $154 per month
This is based on an owner-occupier paying principal and interest on the average variable rate of 6.33 per cent, with 25 years remaining on the loan.
Do I have to reduce my payments, or can I keep them the same and reduce my loan quicker?
Depending on your lender will determine what happens with your loan repayments. Some banks such as CBA will reduce your loan repayments automatically, while others will leave them as they are which in turn will reduce the length of your home loan term.
Most banks will allow you to modify your repayments in their online app or you may have to call the bank directly. Unfortunately, due to privacy restrictions we are not able to change your repayment amount.
Is now a good time to buy?
Our belief is that, if you can afford to purchase a property now then you probably should as house prices generally only go up. With a reduction in the cash rate this will see more people be able to successfully apply for a home loan, and others able to borrow a higher amount. This normally puts upward pressure on house prices.
What is the impact to rents for investors?
Over the next six months, capital city rents are expected to rise. High net migration is driving demand, as more people move to major cities like Sydney and Melbourne. The cut to the cash rate could potentially keep more people in the rental market due to higher property prices. Additionally, housing supply is not keeping pace with demand, leading to tighter rental markets. All these factors combined suggest that renters may face increasing costs in the coming months.
2025 is shaping up to be an interesting year.
If you have any questions or would like a home loan health check to start the year, please don’t hesitate to call us.
Until next time.
At its meeting today, the Board decided to lower the cash rate target to 4.10 per cent and the interest rate paid on Exchange Settlement balances to 4 per cent.
Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. In the December quarter underlying inflation was 3.2 per cent, which suggests inflationary pressures are easing a little more quickly than expected. There has also been continued subdued growth in private demand and wage pressures have eased. These factors give the Board more confidence that inflation is moving sustainably towards the midpoint of the 2–3 per cent target range.
The information provided in this newsletter is general in nature and does not take into account your personal circumstances, needs, objectives or financial situation. This information does not constitute financial advice. Before acting on any information in this newsletter, you should consider its appropriateness in relation to your personal situation.
