Whenever the Reserve Bank reduces interest rates, it is always a case of good news/bad news.
Sure it is good news that mortgage repayments become lower. But it is also means that the economy is slowing.
The implications of this week’s announcements are more nuanced than ever before – some investors will be better off and some worse off. Meanwhile the outcome for others will depend on which bank they are with and their portfolio split.
While the Reserve Bank reduced rates by 0.25 per cent, most banks only partially passed this on to customers. So, if you are an ANZ borrower, you are probably happy because they were the only big bank to pass the rate on in full.
CBA only passed on 0.2 per cent of the cut. Not-so-good for borrowers, but if you are a CBA saver, you may well be better off as, at the same time, CBA correspondingly increased the interest rates on its savings accounts.
Some have argued that CBA increased its deposits rates to give it access to more funds which it can then on-sell to borrowers.
But, chances are, it is due to the Australian Prudential Regulatory Authority tightening the screws on speculative lending. Coincidentally, Westpac and NAB had their annual results in the same week, what the banks said about lending was highly relevant. According to one analyst, Westpac now has tighter criteria for loan approvals as it strives to limit its growth in investment loans to 10 per cent as APRA is recommending.
Similarly, at NABs results it confirmed that steps are being taken to slow growth in investor mortgage lending to meet APRA’s 10 per cent figures. NAB believes that it will achieve APRA’s guidelines by June 2015
So, what does all this mean for property investors?
If your loan application is currently considered marginal by the banks, it will increasingly be considered marginal by the banks.
But, if you are a blue-chip client the recent rate drop could increase how much the banks will lend you.