History Made: C&G Unpack May’s RBA Announcement

Market Updates


The unthinkable has been thunk. Australia’s national cash rate has hit an all-time low: never in our history has it been so ‘inexpensive’ to loan funds.  But what to do with this RBA-given discount on our mortgages and loans? How does the cash rate’s discount from 2.25% to 2% affect homeowners and retirees more generally? In today’s blog,
C&G unpack the highly anticipated RBA announcement for May.

Market pundits had been eagerly awaiting a new record-setting interest rate cut for some time, with 23 of 27 economists polled by Bloomberg expecting Governor Glenn Stevens to announce a .25% cash rate cut. The big banks have also jumped on the discounting bandwagon, passing on either the full rate cute, or a percentage thereof. NAB are going so far as to advertise that they’re now offering ‘home loans your parents will be jealous of’. When you compare today’s competitive lending environment from that of the 80’s (think interest rates at 18% and 19%), it certainly does put the optimum borrowing conditions of 2015 in stark relief.

So what kind of savings are in store for mortgagees should their bank pass along the rate cut? A borrow on an average loan of $300,000 over 25 years will save an additional $44 per month. Freeing up these additional funds will ‘put fertiliser’ on the Australian economy, notes Treasurer Joe Hockey. He says that the rate cut will ease pressure on small businesses and mortgagees, ‘helping to further stimulate economic growth and stimulate more jobs’. The flip side of a lower national cash rate is of course that savings accounts and superannuation funds return less to retirees – potentially forcing them to either curtail their spending or look to other forms of economy-stimulating investment to garner strong returns.

Key amongst such alternative forms of investment is property – Chisholm & Gamon predict that the further rate cut will only further increase participation in the local real estate market. Should you be an aspirant buyer – the time is now! Don’t wait any longer to ‘time the bottom’ of the interest rate market – meet with your broker, decide whether fixed or variable loans suit your situation best, and secure a property that’s certain to give you strong capital growth. The bayside areas we are privileged to transact in – think Elwood, St Kilda, Port Melbourne, Black Rock, Mount Martha, Brighton, Sandringham and surrounds – are all robust areas well-serviced by transport, rich with amenities such as schools and village shopping, and enjoying strong demand from tenants. If you’re fortunate enough to already own property in these areas, consider capitalising on demand (particularly from newbie investors and first home owners) and ‘trading up’  - selling your home under competition to upgrade to a more valuable investment in the same area.

As always, Chisholm & Gamon are happy to help discuss your property plans and formulate a roadmap for the future. Carpe diem!