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Rate Cuts Must Be Passed On In Full By Banks

By Lisa Kalucy

MARKET NEWS

Rate Cute Must Be Passed On In Full By Banks, Says HIA.

Yesterday’s rate cut by the Reserve Bank of Australia is timely and must immediately be passed on in full by the banks, said the Housing Industry Association, the voice of Australia’s residential building industry.

“For some time, we have been urging the RBA to reduce interest rates in order to add fuel to what is still a fledgling residential construction recovery. Clearly a rate reduction was needed and we welcome today’s decision,” said Shane Garrett, HIA’s Senior Economist.

“It is crucial that banks pass this rate cut on in full to mortgage borrowers and small business loans. On most occasions in recent years, banks have pocketed part of the interest rate cuts rather than allowing their customers to receive the full benefit,” commented Shane Garrett.

“The RBA has reduced rates by 225 basis points since November 2011 and it is important to stress the benefits that have resulted,” added Shane Garrett.

“Lower interest rates have helped to support a modest though hesitant recovery in residential construction activity. There have also been significant cash savings for borrowers with variable rate loans. On a $500,000 mortgage with 30 year term, the monthly repayments have fallen from $3,300 in January 2011 to $2,679 today. Had the banks passed on the rate cuts in full, the fall in repayments would have been even larger,” noted Shane Garrett.

“It is important to remember that interest rates are only one part of the housing equation. The weakness in the market is being compounded by the huge tax burden on new home building, impediments on releasing suitable residential land, and excessive regulation of the industry. We look forward to these issues being addressed during the election campaign,” concluded Shane Garrett.

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