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