Another cut in official interest rates could lead to more homes being built in Wagga, provided borrowers meet strict criteria.
On Tuesday afternoon the Reserve Bank of Australia cut the official cash rate to 1.5 per cent, a historic low for the central bank.
But home loan customers will receive only part of the official rate reduction, with the big banks blaming higher costs and tougher regulation for their failure to pass on the whole amount.
Commonwealth Bank will cut its standard variable interest rates for mortgages by 0.13 percentage points, ANZ by 0.12 percentage points and National Australia Bank 0.10 percentage points. Westpac will reduce its rates by 0.14 percentage points for customers with principal and interest home loans, and 0.1 percentage points for customers with interest-only loans.
Regardless, Kooringal mortage broker Janette Tucker said a drop in interest rates was an opportunity for homeowners to potentially save thousands.
“Say you’ve got a $250,000 mortgage at 6 per cent interest, you’re paying $15,000 interest each year,” Ms Tucker said.
“If you can get a loan at 4 per cent you’ll only pay $10,000 interest. There’s a holiday, a renovation, school fees or just a chunk off your mortgage right there.”
However, Ms Tucker said a drop in interest rates didn’t always mean people could borrow more money.
“Banks have a responsibility to build in a buffer to protect their clients from rising rates,” she said. “As a result, on a 4 per cent rate they’re still assessing people on what they can afford on 5.5, 6 or even 7.3 per cent rates.”
Wagga builder Anthony Corbett said low interest rates had seen an increase in the number of investors building homes in suburbs like Estella and Boorooma.
“In the past 12 to 18 months, just when you think it’s going to slow down it doesn’t,” he said.
“Construction has increased and there’s been a lot of interest from out-of-towners.”
Economics professor John Hicks from Charles Sturt University (CSU) Wagga said concerns about a potential recession and a move to ensure employment didn’t collapse may have tempted the central bank’s board to lower the rate.
“A lower interest rate means institutions can borrow money more cheaply and it makes them more willing to lend,” Professor Hicks said.