Real Estate Institute of Australia (REIA) President, Ms Pamela Bennett says the RBA’s decision to cut interest rates by 50 basis points today was the right one but will do little for the economy if commercial lenders fail to pass it on in full.
“It is now on the big lenders in particular to restore faith with the Australian public, pass on the rate cut in full, and give our economy the shot in the arm it so desperately needs,” Ms Bennett said.
If the 50 basis points cut announced today is passed on by the banks, it will save $91 per month off the average mortgage and will make home loans around 4.3% more affordable for Australian families.
Ms Bennett says while this cut is long overdue, it is most certainly a welcome step in the right direction to stimulate the lower end of the market and to make buying a home more affordable for young Australians.
“First home buyers are starting to return to the property market but the level of activity is still only about half of what it was in 2009 and affordability has plateaued,” Ms Bennett said.
“We desperately needed this cut and we’re pleased the RBA has finally decided to respond appropriately. Of course, it will count for little if we don’t now see corresponding action from the major lenders,“ Ms Bennett concluded.
The REIA’s measure of affordability, the Home Loan Affordability Indicator (HLAI), is the ratio of median family income to average loan repayments. Figures produced for the December 2011 quarter indicate that 32.9% of the family income is required to meet loan payments producing an HLAI score of 30.4. If today’s cut in interest rates is passed on in full the proportion of income required to meet loan repayments falls to 31.5% resulting in an HLAI of 31.7 or a 4.3% improvement in affordability.
Source: The Real Estate Institute of Australia (REIA) is the national professional association for real estate agents in Australia.