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Rate cut eases loan drain

by Shelton on May 21st, 2013

filed under House Loan

TASMANIAN homeowners will have about $32 knocked off an average monthly mortgage repayment after the Reserve Bank cut the official interest rate to an all-time low.

The surprise cut to 2.75 per cent yesterday means people looking to buy their first home would be crazy not to pursue the great Australian dream, housing industry leaders say.

New homeowners Chris and Lauren Wild, of Mt Stuart, pictured, said the cut was great news for them and fellow first home buyers in Tasmania.

This will certainly make things a bit easier, Chris said.

Well probably save the extra money … and put it towards something more exciting like travelling.

Three of the Big Four banks National Australia, Westpac and Commonwealth passed on the 25 basis point reduction in full yesterday.

But ANZ is sticking to its decision not to change its mortgage rates until its rates committee meets on Friday.

Housing Association Tasmania executive director Stuart Clues said it was the perfect time to buy a home.

Youve got builders whove got the lowest level of activity weve seen in over a decade ready and available at your disposal and actively competing for your work, he said.

The net result for ordinary Tasmanians is that youre going to get a house built on time and on budget at the lowest interest rates weve seen. Theyd be crazy not to go for it.

Further reductions are expected by economists before the year ends as the RBA retains a clear easing bias and will need to boost growth in the economys non-mining sectors to offset the expected mining slowdown in Western Australia and Queensland.

Several smaller lenders have also passed on the full rate cut, including Bank of Melbourne, Bank of Queensland, Suncorp Bank and ING Direct.

Tasmanians have an average mortgage of about $200,000 and face monthly repayments of about $1216.

Mr Clues said the cuts should show all Tasmanians that there was no better time to escape the rental cycle or build an investment property.

The unexpected rate cut coincides with the Tasmanian Chamber of Commerce and Industrys Survey of Business Expectations release yesterday, which points to positive news on the horizon for the states flagging economy.

TCCI chief economist Phil Bayley said that, while the survey figures were not strongly pointing towards a turnaround, smaller positive signs suggested that tough economic conditions might be starting to ease.

Despite the fall in official rates to their lowest level since the RBA was established in 1959, loans for borrowers are still above the 5.75 per cent that was being offered by the big banks in 2009 and the lowest-ever mortgage level of 5 per cent set in 1964.

But the sharp reduction in lending rates is bad news for the growing band of savers, with deposit rates tipped to fall sharply over coming months.

Self-managed retiree Richard Horswill of Lindisfarne said he had mixed feelings about the reduction.

Its not so good for myself and my wife but it is good for my son, Mr Horswill, 62, said.

Hes got a house loan and three children anything that helps him out is good.

Mr Horswills bank deposits are earning minimal interest because of recent rate cuts but his retirement portfolio consists of a mixture of bank deposits and shares.

You cant afford in this day and age to put all your eggs in one bucket, he said.

Treasurer Wayne Swan praised the banks for passing on the savings to customers because it would help families struggling with the cost of living. He defended the Governments economic record despite the RBA warning that growth had been running below trend for nine months.

Mr Swan said it was utterly irresponsible to suggest that because the cash rate was below 3 per cent, which he described as emergency levels in 2009 during the GFC, this reflected a poorly performing economy.

We have solid growth, we have low unemployment, we have a strong investment pipeline, we have strong public finances, we have contained inflation and we have low interest rates, he said.

But shadow treasurer Joe Hockey said the RBA was stepping in to do the heavy lifting with rates dropping to beyond emergency levels as the economy faltered.

And rates may go even lower, with AMP Capital Investors chief economist Shane Oliver saying they would drop to 2.5 per cent in the next few months to boost spending.