For the seller
History suggests that when an interest rate cut occurs property values go up. Borrowers generally find it easier to access finance at lower interest rates, meaning there are more buyers, more competition, as a result property values are pushed up.
A research discussion paper released by the RBA (Reserve Bank of Australia) looked at A Model of the Australian Housing Market, noting a 1% reduction in interest rates lead to an 8% increase in property prices over the course of the next 2 years.
Whilst a RBA rate cut is welcomed by most looking to sell, as is the previously mentioned increase in property values, it is all dependent on whether lenders pass on all or some of the rate cut. Shortly after the RBA announced a 0.25% rate cut, ANZ was the first to move and cut their rates by 0.18%, CBA passed on a full rate cut of 0.25%(at time of writing) whilst home owners and borrowers everywhere hope lenders will pass on the rate cut in full.
For the buyer
First things first, you should be able to borrow more.
The accountant in me errs on the side of caution and says do your numbers, know what you can afford (although the banks will undoubtedly scrutinise you) and know that even though the RBA has cut the official interest rates to record lows, they may not always remain this low.
Shop around and see what the best rate and terms are available for you.
For the homeowner
If you’re on a fixed rate, the rate cut means very little for you. If you’re on a variable loan then you should see a benefit by way of a rate cut.
If your lender doesn’t pass on a rate cut, you should explore your options, get in contact with your mortgage broker to see what they can do for you.