Banks need to pass on Australian interest rate cut to help property market

Australia’s struggling property market needs more than the recent 0.5 per cent cut in interest rates to recover.  That’s the view of many experts who believe that unless the country’s major banks pass on the interest rate cut to mortgage borrowers, the property market will continue to struggle.

Banks need to pass on 0.5% rate cut to help property market in Australia

The Sydney Morning Herald says that ‘Australia’s housing market needs more than the Reserve Bank's 50-basis-point cut in the official interest rate to stage a meaningful recovery.  The headwinds in the property market are significant and not a one-rate-movement fix.’

The minutes of the Reserve Bank meeting said: ''Credit growth remains modest overall.  Housing prices have shown some signs of stabilising recently after having declined for most of 2011, but generally the housing market remains subdued.''

Experts are now calling on Australia’s major banks to pass on the full 0.5 per cent cut to their borrowers in order to help stimulate the housing market by reducing the cost of borrowing.

However, the Reserve Bank of Australia has no control over whether banks pass on these rate cuts.  Over recent years, Australia’s banks have ‘all but ignored’ rate moves and have failed to pass on interest rate cuts in order to help their own profits.

The newspaper also reports that ‘the banks have also tightened credit requirements - while this is good for their bad or impaired loan numbers, it does nothing to stimulate the housing market.’

Unless the banks pass on this full 0.5 per cent interest rate cut, there will be no incentive for new borrowers to enter the market. 

Having seen how Australian banks have behaved over recent years, I would be very surprised if they cut their rates by any more than 30 or 40 basis points, which won’t help the property market in Australia.”

written by Nick Marr

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