What the Interest rate drop means for you: And is a property boom on the horizon?

In great news the RBA finally passed down some relief to borrowers yesterday, cutting the cash rate from 4.35% to 4.1% – the first rate cut since 2020.

The new rate will provide a boost to borrowing capacity and improve overall affordability. Some industry commentators are also speculating that this rate cut could be an early indicator of the start of the next property boom, so if you’ve been waiting for the perfect moment to buy before prices rise, it could be your chance to make a move.

When will borrowers see the new rates come into effect?

All of the Big Four Banks have announced a 0.25% cut to their variable home loan interest rates. However, the timing of the RBA rate cut adjustment varies. NAB, ANZ, and CBA customers will see the change in 10 days, while Westpac customers will experience it in 14 days (March 4).

Integra’s in house Mortgage Broker Darren Hammil has provided us with some insight and tips to help buyers get the most out of the cuts.

Top Tip

Repayments may not immediately come down on those dates. In many cases, you’ll need to contact your lender if you want to reduce your minimum monthly repayments.

“When a bank announces a reduction in variable mortgage rates for its customers, the rate change is applied automatically on the effective date which is typically 10-14 days after the announcement. Mortgage interest is calculated daily, so once the rate drops, you’ll be charged less interest starting that day.”

Even though some banks automatically adjust the minimum repayments and direct debits (the amount taken from your account) when the interest rate changes, it may take some time for the lower amount to show up in your bank account after a rate drop.

Here’s the breakdown:

Automatic Adjustments

Some banks will automatically lower your minimum repayments (the required monthly payment) when interest rates go down.

Time Delay

Even if the bank adjusts the repayment amount, it doesn’t happen instantly. It may take a while for the bank to process and apply the new, lower repayment amount to your account.

Previous Experience

When interest rates were rising, it could take anywhere from one to three months for banks to adjust the amount that was being taken out of people’s accounts.So, with the interest rate drop, while the bank may automatically lower your repayment, the change could take a little time to reflect in your direct debits, even though the reduced interest will start applying to your mortgage immediately.

Top Tip

Borrowers should note that a reduction in interest rates doesn’t always automatically lower their minimum monthly repayments. Instead, banks typically offer customers the option to keep their repayments the same.

“You may need to contact your bank if you want changes to your repayments to occur however it is in the customers best interest to keep repayments higher if possible – as this can lead to big savings over time.

How could interest rate cuts affect the property market?

With interest rates now dropping, the property market could be on the verge of a shift. After enduring the toughest period, this could be the right moment to act, as lower rates may fuel demand for properties. As borrowing becomes more affordable, more buyers could enter the market, potentially driving up property prices once again. If predictions hold true and rates continue to fall, this flow-on effect could push established property prices back up, signaling a possible rebound in the market. Now could be the perfect time to seize the opportunity before prices rise further.

For those looking to buy land

Lower borrowing costs

A drop in interest rates reduces mortgage repayments, making it more affordable to finance land purchases.

Increased purchasing power

With lower rates, buyers can potentially afford larger or more desirable lots or established homes.

Boost in demand

More buyers might enter the market, driving up competition and potentially increasing land and house prices, so get in quick!

For those who already own land or have a mortgage

Lower loan repayments

Existing landowners with mortgages will benefit from reduced monthly repayments if they have a variable-rate loan.

Lower interest costs during build

When rates fall interest component during construction phase will drop give people more cash flow.

Opportunity to refinance

Landowners might consider refinancing their loans at a lower rate, reducing long-term debt.

Increased equity

As interest rates drop, the value of the land could increase due to heightened market demand, boosting the equity of existing landowners.

Where to go from here

With rebates available, interest in land has remained steady, and the recent interest rate drop is likely to boost demand further. Now is the ideal time to start exploring your options. For expert advice and to understand your buying power, we recommend speaking with our in house mortgage broker Darren Hammil.

Who to speak to

The role of the broker will be important in this environment if rates continue to drop. Clients will turn to their mortgage brokers for expert advice on navigating lending options, whether it’s securing a first home loan, negotiating better terms with their current lender, or refinancing.

Don’t hesitate to chat further to our inhouse Mortgage Broker and maximise your buying power.

Disclaimer: Note that past performance in relation to property prices, is no guarantee of future results. The Integra group of entities assumes no responsibility or liability for any errors or omissions in the content of this post.  You should seek independent advice (as applicable to your circumstances) in relation to your investment decisions.