Interest rate cuts generate new home loans

Interest Rate Cuts Generate New Home Loans

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The RBA’s interest rate is working and cuts are benefiting the property market. Recent data shows an increased in new home loans, suggesting banks’ reductions are being passed to household borrowers. 

This forms part of the speech of Dr. Christopher Kent, assistant governor of the Reserve Bank of Australia (RBA) addressed to the Finance and Treasury Association on Tuesday. 

Interest rate cuts are flowing to borrowers

Dr. Kent said that the new monetary policy of 1% interest rate is working as “usual” and that the cuts are flowing to the economy, including the property market, with data showing reductions in home loan costs being passed on to borrowers.

“The transmission of monetary policy in Australia to financial conditions is working in the usual way,” Dr Kent said. He said the change in the stance of policy contributed to, among others, lowered cost of funding for banks, businesses, and home-loan borrowers.

“Much of the reduction in banks’ funding costs has been passed through to business and household borrowers.”

He pointed out that the average interest rate paid on outstanding variable-rate housing loans in the RBA’s securitisation dataset went down by 23 basis points in June. He observed that this was the same average reduction in standard variable rates by banks in the country.

“Similar reductions in outstanding rates are expected to be recorded for July data.”

He also noted that borrowers, both new and those seeking to refinance existing home loans, are consistently being offered interest rates that are “below” standards for existing loans. 

 “So customers who are actively looking around at what’s on offer, are able to take advantage of the strong competition among lenders.

 “Although housing credit growth declined further in June, approvals for new loans increased. This increase in approvals was broadly based, across owner-occupiers and investors, across states and across different types of lenders.”

Dr. Kent said the RBA expects new home loan approvals to top June’s increase if the current conditions of the property market continue to improve.


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