Latest interest rate cut will be big blow for one key Aussie group
It will seem like a big win for some — but the RBA's latest interest rate cut could make life substantially harder for a big subset of the Aussie population.
Experts said those still searching for a place to call home would be steamrolled by the central bank's decision to slash interest rates by 0.25 per cent, announced at its May board meeting on Tuesday.
The official cash rate has now dropped from 4.1 per cent to 3.85 per cent.
The move, widely anticipated by economists and the money market, is the second rate cut for the cycle following an earlier reduction in February and a hold in April.
It will deliver existing homeowners a lot of savings on their repayments but it is also expected to supercharge the property market and leave would-be buyers even further behind.
The cut could pour fuel over an already heating housing market and drive up prices, with much of the increased competition expected to come from investors and upgraders, economists revealed.
All this will coincide with a still frantic rental market that will make it harder for new home buyers to save fast enough to match price rises.
Gareth Croy, director of financial services firm Your Future Strategy, said first-home buyers are going to be 'chasing the market'.
'Another cut, plus more cuts later this year, could boost the average buyers' borrowing capacity by about $75,000. And we could see that amount added to prices by Christmas,' he said. 'Rate cuts do create this fear of missing out that can push prices up.'
PRD chief economist Dr Diaswati Mardiasmo said the recent cut and subsequent cuts would make it harder for aspiring first-time buyers to get into the market in the coming months.
'First-home buyers who are ready to purchase right now might get some benefit from cheaper rates but those with longer-term plans are going to find it a lot harder,' she said.
'Part of the problem is that someone who isn't in the market yet will see their ability to save diminish because there is still high rent and high living costs and three or more cuts this year will push up the price they will pay for their home.'
The brutal twist is that those trying to save for a deposit could be hit twice.
New research has found that the majority of Aussies are still banking with the same institution they joined as teenagers — often on outdated savings accounts with lacklustre interest returns.
Banks have also historically been very quick to slash interest rates on savings accounts.
With rates now slashed even lower, their hard-earned deposits are soon to be earning a lot less.
KEY BANKING MISTAKE EXPOSED
The polling by comparison group Finder.com.au revealed 51 per cent of Aussies were sticking with the bank they joined as children, often in accounts set up by their parents.
The research found 55 per cent of women were still with the same bank they had as a child, compared to 47 per cent of men. The trend was prevalent across all generations, with almost one in three baby boomers (30 per cent) still with their very first bank.
Finder personal finance expert Sarah Megginson said these Aussies were likely missing out on a better deal.
'You can be sure there's a better rate available than the one on the account your parents opened for you as a child,' she said.
'You might think your existing bank is 'good enough', but if you're not earning interest, it's your bank balance that is missing out.'
It comes as additional modelling from Aussie Home Loans found that rising prices would likely outweigh the benefit of lower interest for first-time buyers.
Those who bought next year could be stung with an additional $77,000 in costs over the life of their loans, the Aussie analysis found.
Some first-home buyers say they are fearful of what the future holds.
James Martin and Liz Upcroft, both 28, plan to buy a home later this year or early next and said they were concerned price rises could be too fast.
'Rate cuts are fantastic for people who already bought but for someone looking to buy at the end of this year, it's a bit of a worry because prices could go up a lot. It's a catch-22,' Mr Martin said.
He added that the prospect of getting priced out the market had encouraged them to consider the government's First Home Guarantee Scheme, which will allow them to buy with only a 5 per cent deposit.
'I feel like if we wanted to get a 20 per cent deposit, the interest rate cuts would affect our savings and it would be a lot more of a problem,' Mr Martin said.
IMPACT OF PREVIOUS CUTS
Mortgage Choice inner west broker Chantelle Rangel said similar cuts in interest rates had heated the housing market in the past and this trend was already looking to be repeated.
'I've never been this busy before,' she said. 'What's interesting is, we've had a significant increase in investor pre-approvals as well as people wanting to purchase in their self-managed super funds.
'There is always a frenzy of demand as soon as rates drop ... We experienced many buyers who were sitting on the sidelines due to affordability re-enter the market after the last rate cut.'
REA Group economist Anne Flaherty said a similar trend even occurred when rates were last cut in February.
'Following February's rate cut, buy searches on realestate.com.au jumped, consumer sentiment saw a significant recovery, and home price growth picked up,' she said. 'A rate cut in May is likely to have a similarly positive impact on buyer demand and confidence.'
Peter Kelaher, director of buyer's agency PK Property, said in a note to clients that the experience of previous rate cuts suggested a wave of demand was coming.
'When interest rates come down, the natural human reaction in most cases will be to borrow as much money as you can,' he said.
'And what does that mean? It means one thing: people can throw around more money to be competitive at auction, and in general, the property market.'
Owl Home Loans director Aidan Hartley said rate cuts had already driven a huge influx of buyers seeking approvals.
'I've been doing this a while and I've never been thrown as many contracts from new buyers,' he said. 'There's a big sense of urgency because a lot want to get in (to the market) before cuts because they're taking out variable rates,' he added.
Compare the Market property expert Andrew Winter said a rate drop at the RBA's Tuesday meeting would likely push prices up again.
He explained that cheaper credit would lead to bigger offers on properties, particularly in highly sought after areas.
Mr Winter said aspiring buyers may be anxious to 'get a foot in the door' now before market conditions become too competitive. He said the capacity to borrow more money would not make buying a house easier for most people.
'The main hurdle for most first-time buyers is raising a deposit which can be extremely challenging when value growth outpaces wage growth in such an extreme way.'
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Sky News AU
5 hours ago
- Sky News AU
Virgin Australia celebrates return to the ASX with domestic airfares from $49 in new four day 'Bell to Boarding Sale'
Virgin Australia is celebrating its return to the ASX with a massive sale across the carrier's entire network where flights are going for as little as $49. The nation's second largest carrier is heading back onto the stock market for the first time since 2020 with a four day 'Bell to Boarding Sale'. From 12:01am on Tuesday to Friday 11:59pm, travellers can lap up an array of flights at bargain prices - including a one-way economy lite domestic flight from Sydney to Ballina for less than a pineapple. Canberra to the Gold Coast flights are going from $85, Melbourne to Uluru from $99, Brisbane to Hamilton Island from $119, Perth to Sydney from $209 and dozens of others. The sale also extends to travellers looking to whip out their passport for some jaunts across the Tasman, further out into the Pacific or even up north to Bali. Melbourne to Queenstown return economy lite airfares are starting from $455, Brisbane to Vanuatu will set travellers back $489, Sydney to Fiji is going from $595, Gold Coast to Bali from $489, Brisbane to Samoa from $729 and more. Virgin Australia's chief marketing officer Libby Minogue said the sale comes as the carrier looks to help more Aussies "take to the skies and explore the incredible destinations we fly to". 'With these great-value fares, there's never been a better time to book your next adventure – whether it's a quick getaway or a long-awaited holiday,' Ms Minogue said. 'Whether it's relaxing on a sunny beach in Bali or exploring the stunning beauty of Hamilton Island, there's something for everyone.' Travellers keen to stretch their legs can also save on upgrades to economy X seats. Aussies can fork out an extra $27 on certain domestic routes, such as Canberra to Adelaide, for an upgrade or spend $39 on select international flights, including Brisbane to Fiji. These airfares apply for selected travel dates between July 22 and March 26 2026 and run until the weekend or they are sold out. The sale is to celebrate Virgin Australia offering 30.2 per cent of the company, or $685 million for $2.90 per share, to investors on Tuesday.
West Australian
10 hours ago
- West Australian
ASX200 falls on latest Israel-Iran tensions
The Australian sharemarket slipped to a three-week low on Monday, despite Commonwealth Bank reaching a new record high, on the back of fears an Iranian response to the US bombing could see the price of crude oil skyrocket. On a volatile day of trading, the benchmark ASX200 fell 30.6 points or 0.36 per cent to 8,474.9 on Monday – its lowest point since June 3 – although it rallied from down nearly 1 per cent during the afternoon's trading. The broader All Ordinaries also slumped, down 35.50 points or 0.41 per cent to close the session at 8,688. The Aussie dollar also fell on the news out of Iran and is now buying US64.18c. On an overall volatile day, eight of the 11 sectors finished in the red, with financials and the energy sector leading the way. IG market analyst Tony Sycamore said the sell-off was in line with US futures on well-founded fears after the US conducted strikes with B-2 Stealth Bombers on three Iranian nuclear sites over the weekend. 'The US insists the strikes were aimed at halting Iran's nuclear ambitions, not regime change, but Trump's rhetoric suggests openness to further action, Mr Sycamore said. 'You would have been forgiven for thinking we would have a really volatile session on Monday. 'Whether it's just caution or because we have seen nothing from Iran just yet to shake things up further … we are in a hold until we know more.' One of the bright spots on the ASX was the financial sector, with Commonwealth Bank hitting a fresh record high of $184.41, before closing up 1 per cent to $184.35. Mr Sycamore said Commonwealth Bank remains a 'juggernaut that steamrollers people.' 'I don't know where it stops and when it stops but it's the best of the banks and that is the sector where people want to be,' he said. Overall, it was a mixed day for the major banks, with Westpac closing up 0.63 per cent to $33.42. National Australia Bank slipped on the bell, down 0.08 per cent to $38.88 and ANZ dropped 0.63 per cent to $28.21. Energy stocks, which initially bounced on the opening bell, trimmed their earlier gains in line with the oil price but still closed the day in the green. Takeover target Santos closed 1 per cent higher to $7.78 while Woodside Energy traded flat and Ampol gained 0.47 per cent to $5.86. Iron ore miners continued their weakness with market heavyweight BHP slumping 1.57 per cent to $35.64, Rio Tinto dropping 0.33 per cent to $101.83 and Fortescue Metals sliding 1.02 per cent to $14.54. In company news, shares in Australia's largest airline Qantas fell 1.85 per cent to $10.08 on the back of higher oil prices. Discounted retailer The Reject Shop announced shareholders had overwhelmingly voted in favour of a $259m takeover by Canadian discount retailer Dollarama at a meeting on Monday. Homewares and furniture retailer Adairs plunged 20.5 per cent to $2.05 after telling the market that full-year earnings would come in below last year's.
News.com.au
14 hours ago
- News.com.au
Iran's closure of Strait of Hormuz could drive up petrol prices by 70 cents per litre
You may want to fill up your tank today. Iran's threatened closure of the Strait of Hormuz could send petrol prices soaring by up to 70 cents per litre, putting pressure on the RBA to delay further interest rate cuts and driving a sharp fall in global share markets. However, any prolonged disruption would also drag down economic growth and consumer spending, trimming underlying inflation and potentially putting the Reserve Bank in wait-and-see mode, according to AMP chief economist Shane Oliver, who is still leaning towards three more rate cuts this year in July, August and November. 'It's increasingly looking likely we might go into that worst-case scenario and the debate then goes into how long it lasts,' said Dr Oliver, who previously put a closure of the Strait of Hormuz as his 35 per cent 'risk case'. The narrow stretch of water in the Middle East, which connects the Persian Gulf to the Gulf of Oman, is one of the world's most vital shipping channels where 20 per cent of the world's oil and 25 per cent of liquefied natural gas (LNG) flows through daily. The waters are divided between Oman and Iran. At its narrowest, the strait is just 34 kilometres wide. Following US President Donald Trump's strikes on Iran's nuclear facilities on Saturday, Iran's parliament voted on Sunday to close the Strait, as the country's President said the US 'must receive response to their aggression'. While Iranian state media reported that the parliament had agreed to endorse blocking the Strait, the decision ultimately belongs to Iran's Supreme National Security Council — which is expected to make a final decision overnight on Sunday local time, according to Iran's state-run Press TV. 'Suicidal move' The move could block more than $US1 billion in oil shipments per day. Iran's major escalation in response to the US strikes 'will be done whenever necessary', Email Kosari, Commander in the Revolutionary Guards, said on Sunday. US Secretary of State Marco Rubio warned against closing the strait, calling such a decision an escalation of conflict. 'That would be a suicidal move on their part, because I think the whole world would come against them if they did that,' Mr Rubio told CBS. He earlier called on China to encourage Iran to not shut down the strategic channel after Washington carried out strikes on three nuclear sites in Iran. Chairman of the Joint Chiefs of Staff General Dan Caine said in a press conference the US was now on 'high alert' for retaliation from Tehran. 'You could face a situation where the US could quickly disable Iran's ability to block the Strait of Hormuz [but] that could still be weeks,' said Dr Oliver. 'It's not actually putting a rope across — they could put mines in it, use missiles and drones to attack shipping, use small speedboats to attack bigger boats, that sort of stuff. They've only got to do it once, just like the Houthis [attacking shipping in the Gulf of Aden]. All you've got to do is do it once, you threaten to do it and ships stay away.' As of Monday morning the Strait remains open and in commercial use, public vessel tracking data show, but shipping organisations and government organisations have urged caution. At least one Chinese oil tanker was observed making a U-turn at the Strait. Chinese are turning around as well.... this is something — Oil Bandit 🛢ï¸� (@OilCfd) June 22, 2025 The Baltic and International Maritime Council (BIMCO), one of the largest international shipping associations, has urged caution in the Middle East including the Strait of Hormuz and the Red Sea, after the Houthis announced renewed targeting of American vessels. 'The Houthi threat against shipping in the Red Sea and Gulf of Aden has also gone up,' BIMCO security chief Jakob Larsen told Bloomberg. 'The Houthis now threaten merchant ships with affiliation to Israel or the US, but attacks against merchant ships with other affiliations cannot be ruled out.' Greece's Shipping Ministry has also advised shipowners to 'reassess their transit through the Strait of Hormuz', the outlet reports. '70 cents per litre' Sustained disruption in the Strait of Hormuz could send the global oil price soaring to $US150 a barrel from around $US70 on Friday, according to Dr Oliver. 'Roughly speaking each $US1 a barrel equals one cent a litre,' he said. 'If you go to $US150 you're potentially adding another 60-70 cents a litre.' That would significantly increase headline inflation. Petrol accounts for about 3.5 per cent of the consumer price index (CPI), which rose 2.4 per cent in the 12 months to the March quarter. 'If you push up towards $US100 a barrel and beyond, it will easily add 1 per cent to headline inflation,' Dr Oliver said. 'But it then becomes a question of what the RBA does.' The current cash rate is 3.85 per cent, after a 25 basis point cut by the RBA in May. Three more cuts had been tipped this year to bring the cash rate down to 3.1 per cent. As of Friday, petrol prices had already risen by 10-12 cents per litre amid the Israel-Iran conflict. Dr Oliver said if the impact remained at that level, 'you could get a bit of a boost' to headline inflation but the RBA 'would probably look through that' and likely cut again in July. 'If alternatively we see a clear disruption to trade which goes on for more than few days, then oil prices spike and the RBA could conceivably wait a bit longer,' he said. 'The RBA would also be looking at underlying inflation and may want to wait through. It would be keeping an eye on the impact on the economy. Higher oil prices are effectively a tax on consumer spending and economic growth. Ultimately that could outweigh the impact of higher petrol prices alone and drag down underlying inflation.' Dr Oliver pointed out that while higher oil prices flowing from the war could drag on Australian economic growth via weaker global growth, Australia was relatively well placed as a net energy exporter and so may benefit from higher prices for gas exports. There are also 'lots of issues around that what the Australian dollar does'. 'China, being the largest customer for this oil stands to be the most affected,' Alex Moffatt, director of Melbourne investment firm Joseph Palmer & Sons, said in a note on Monday. 'We can expect our energy stocks to enjoy a hearty rally today and the Aussie dollar to rally on 'safe-haven' buying.' As of Monday morning oil futures were trading at around $US77 a barrel, up around 4 per cent from Friday. 'The risks are obviously increasing, but it's just a lot of noise at the moment,' Dr Oliver said.
