RBA's 0.25% Rate Cut 2025: Impact on Property Investors & House Prices

Unlock the secrets to navigating today’s property market as Casey Taylor breaks down the Reserve Bank of Australia’s recent 0.25% interest rate cut. Learn how this rate reduction could significantly impact market psychology, leading to increased competition and potential property price hikes. Discover which lenders are quickly passing on these savings, giving savvy borrowers a strategic edge in a changing market.

We also explore the crucial topic of the cash buffer rate and its effect on borrowing capacity. As interest rates drop, is it time for banks to reduce the buffer from 3% to 2.5%? This timely discussion is essential for investors, homeowners, and future buyers alike, providing key insights to make informed property decisions. Join us and stay ahead in the evolving property landscape.

Chapters

• 0:00 Impact of RBA Rate Drop
• 10:22 Cash Buffer Rate and Borrowing Capacity

Transcript

Speaker 1: 0:00

Welcome back to another episode of the Taylor Property Wealth Podcast. My name is Casey Taylor, I'm the host of the podcast and in today's episode we're going to be talking about what the RBA have done this week and that is dropping the rate by 0.25%. We're going to be talking about the implications of this, what this is going to mean, what it's going to do to some borrowing capacity scenarios and then what lenders have passed this on already. Okay, so let's get straight into what does this mean for borrowing capacity? Got a couple of different scenarios here, based on a couple of different income levels. Now, for each of these scenarios, we're assuming a single applicant, no dependents, no debts, and it's an owner-occupied loan. For this scenario, okay, and this is the average owner-occupied home loan across competitive lenders, alrighty. So for an applicant on $90,000 per year prior to the 0.25% rate, cut On a $90,000 income, assuming a 6.25% interest rate, okay, the borrowing capacity would be $469,281. Now, post that reduction, we've got the same income, but with that 0.25% discount or reduction, I should say it's 6%. Borrowing capacity is $479,810. So it's increased $10,529. Okay, nothing to really boast about right now.

Speaker 1: 1:45

If we've got an income of 120 000 6.25 interest rate, our borrowing capacity for that individual would be 630 098 now at 6%. For that $120,000 income, $644,235 is the borrowing capacity, so it's increased $14,137. Now we bump up again to $150,000 income prior to the rate drop. Prior to the rate drop 6.25% interest rate borrowing capacity $786,843. Now, post-reduction, $150,000, that's 6%, we've got $804,497, which is an increase of $17,654.

Speaker 1: 2:44

So is it a dramatic difference in terms of that borrowing capacity? No, it's not, definitely not. Don't get me wrong 10K, 15, a little bit over 15K. There's a little bit more to play with, for sure, but it's only dropped 0.25%. So it's not a massive difference to that borrowing capacity now. But what is going to definitely start to pick up is, yes, borrowing capacity hasn't changed much.

Speaker 1: 3:17

However, there's going to be a massive amount of the herd that are now going to be happy to come back into the marketplace because of rates reducing their cash flow is going to be happy to come back into the marketplace because of rates reducing their cash flow is going to be a little bit better. So they're now going to take action and we've already seen that taking place before. We've even seen the rate reduction and once we see a couple more rate reductions, obviously that borrowing capacity will improve a little bit more, but it's the number of people that will come back into the marketplace that's going to shift the sentiment. That's going to be the most powerful part of that. What's going to happen is there's going to be far more people competing over those same properties and that's going to be the pressure cooker to push prices. The pressure cooker to push prices. That is going to be something key to watch. That sentiment is key With property. There is an element of psychology in that. Everything can remain the same. But if the media are bashing and saying that there's negativity in the marketplace and this and that's going to happen, unfortunately, the reality is there's going to be people out there that listen to that and not take action. But on the flip side, once things start to improve and you start to hear more positive things, just because nothing changes, people will come in to the marketplace because they think that it is improving. So there is a psychology element there.

Speaker 1: 4:46

We've taken a look at that borrowing capacity and not massive differences right, but so it's for current borrowers. I know for myself personally, just from a couple of lenders who are announced some reductions. It's going to mean a pretty big difference for myself. I'm obviously holding like millions of dollars worth of debt, right, so it is a lot more powerful, but there's going to be some big, big savings there for those who are holding larger debt as well. So it's good to see and time will tell where we're kind of sitting at the end of the year.

Speaker 1: 5:23

I was saying it for a while that we're going to see that rate reduction and we predicted early on last week that it was going to drop and proven to be right. So it will be interesting to see what happens throughout this year. But our inquiry levels are definitely picking up. So they've been picking up prior, knowing this was coming, and they're just shooting up again. So if you're kind of thinking of getting in, now's the time to do it, because in a couple of months' time there's going to be a lot more people in the marketplace you'll be competing with Cool cool.

Speaker 1: 5:59

So let's get into which lenders have already passed on the rate drop and this was a little bit of the discussion, the narrative and question around the rate reduction if the RBA passes it on, what lender's in fact going to pass on that 0.25%, if any? Because sometimes we all know, once rates go up, banks pass it on straight away, but once they go down, they take a little bit of time make their decision on whether they're going to pass on the full cut or not. But I think there's been a fair bit of pressure on the banks, on the RBA, and it was pretty quick the decision, I believe, to be made and some effective dates are a little bit different, but we'll discuss those here today, all right. So there's a number of banks that made it effective on the 28th. We've got one at the 27th. So UBank rate reduction 0.25% effective on the 27th of Feb.

Speaker 1: 7:03

And then we have Bankwest, macquarie Bank, suncorp, cba, nab and ANZ. They've all announced a rate reduction of the 0.25% and that is effective of the 28th of Feb 2022. We then have the Bank of Australia, bank of Melbourne, bank of SA, ing, resimac, st George and Westpac. They're all going to be effective from the 4th of March. All right, so they're trying to. They're trying to get a little bit more profit in. And then we've got pepper money. That's a surprising one to see there for me, honestly, but reduction of 0.25% and that is effective on the 5th of March.

Speaker 1: 7:49

So if you're out there and you are holding debt and you haven't really paid attention and you're with one of those banks, you've got some good news. It'll be interesting to see what lenders continue to pass it on. I think We've got all the majors that have passed on that 0.25% and a lot have followed suit. So I think that over the next couple of weeks, we'll see a lot more lenders have to shift where they're at, and that's just to remain competitive in the marketplace as well. So good to see. I think it's great that we've seen them pass it on quite quickly. Obviously, effective date hasn't taken place yet, but they announced it pretty quickly and then getting everything sorted, so it's good to see.

Speaker 1: 8:39

Like I said, the main thing that is going to take place from this is not massively improved borrowing capacities, but it is going to be just a change in sentiment more people coming back into the marketplace that was sitting on the fence waiting for this to happen. So there's going to be some marketplaces as well that we're keeping an eye on that are going to start to shift, and they're going to start to really warm up and heat up as the year goes on. And, yeah, it's an exciting time for investors to take advantage of some opportunities and some marketplaces that are undervalued and if you've got that well-structured system in place, you're analyzing that data, you're doing your. There's some marketplaces that are going to do well, just based on where they're sitting at the moment. If you are wanting to take advantage now that rates have reduced, you want to see what your borrowing capacity is reach out, we can have a chat. We can put you in touch with a really good quality mortgage broker. Or if you're just thinking, maybe I need to look at refinancing now and get a more competitive rate reach out, because we can definitely put you in touch with someone. You want to be looking at this all the time and being proactive when you're out there holding debt.

Speaker 1: 10:04

Let me know in the comments, if you're listening to this. Let me know where you think rates are going to sit at the end of the year, what you think is going to take place. Let me know are you now planning to make a purchase versus not making a purchase a couple of months ago that you've seen a rate reduction? I'm curious to know.

Speaker 1: 10:22

I hope this episode's been valuable. It's just a quick little sneaky one today, based on some things that happened last week in the space of lenders and the RBA, what they're going to do in the future. It's going to be interesting to see. And another question is should we reduce the cash buffer rate? So when banks are assessing us for borrowing capacity, they've got 3% on top at that moment, and that is that risk of if rates increase. But we're now in an environment where rates are reducing. So do we need that 3%? Do we need to shift back to the 2.5% that was increased just a couple of years ago from the two and a half to three percent? Love to know your thoughts, your feedback, on that one. Anyway, have a great day, enjoy those rate reductions if you're getting one of those and have a good one. Bye.